New Delhi, July 10 -- The commerce ministry has asked states and Union territories to stop building parallel startup funding vehicles and instead co-invest through the newly approved Rs.10,000-crore Startup India Fund of Funds (FoF) 2.0, as India seeks to widen access to capital beyond the country's biggest startup hubs, according to two people aware of the development.

The move is designed to concentrate public capital under a single national framework while extending venture funding to startups in India's smaller cities and towns and capital-intensive sectors such as deep technology and advanced manufacturing.

Rather than setting up separate state funds, the ministry has asked states to leverage the FoF 2.0 framework, align incubators...