Startup India Seed Fund Scheme:- With an investment of Rs. 945 crore, the Department for Promotion of Industry and Internal Trade (DPIIT) established the Startup India Seed Fund Scheme (SISFS) to give businesses financial support for the development of prototypes, proofs of concept, market entry, product trials, and commercialization.

On January 16, 2021, the Honourable Prime Minister, Shri. Narendra Modi announced the SISFS plan. On January 21, 2021, the DPIIT announced this plan following approval from the Expenditure Finance Committee (EFC) and the Honourable Finance Minister.

Startups can only receive funding from venture capital firms and angel investors if they have demonstrated their proof of concept. In a similar vein, banks provide money to startups backed by assets. Seed money must be provided to innovative Indian businesses to support proof of concept tests.

Through incubators located all around India, the SISFS offers seed cash to qualified entrepreneurs so they can produce proof of concept. Through 300 incubators, it will provide support to over 3,600 entrepreneurs over the following four years, or 2021–2025. With the help of the seed fund, companies will be able to raise money from venture capitalists or angel investors and apply for loans from commercial banks and other financial organizations.

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Objectives of SISFS

Insufficient financing often plagues India’s startup environment throughout the proof of concept development phase. For businesses with strong business concepts, the funding needed during the proof of concept development phase frequently makes or breaks their scenario.

Inadequate key capital requirements at an early stage of prototype development, proof of concept, market entry, product trials, and commercialization cause many creative business concepts to fail. Giving seed money to such potential businesses can have a compounding impact on proving the viability of their company concepts, which will ultimately result in the creation of jobs.

Eligibility Criteria for SISFS

The following list of requirements enables a business or incubator to apply for the business India Seed Fund Scheme.

Eligibility Criteria for Startups Under SISFS

• A newly established company that has received approval from the DPIIT and has been registered or incorporated for no more than two years at the time the application is filed.
• To create a service or product with a chance of successful commercialization, market fit, and scalability, startups need to have a business idea.
• To address the intended problem, startups must include technology in their primary service, product, distribution strategy, business plan, or approach.
• We offer preference to startups that are developing cutting-edge solutions in waste management, biotechnology, energy, space, defence, oil and gas, food processing, agriculture, healthcare, education, financial inclusion, social impact, water management, and transportation.
• This project is not open to startups that have received more than Rs. 10 lakh in funding from any Central or State government program. Not included in this amount are awards for big challenges and competitions, lab access, the founder’s monthly allowance, and prototyping facilities.
• As per the Companies Act, 2013 and SEBI (ICDR) Regulations, 2018, an Indian promoter’s equity in a company must be at least 51% at the time of application to the incubator.
• Grants and convertible/debt debentures are two ways that a startup can get seed funding, depending on the terms of the plan.

Startup India Seed Fund Scheme

The Department for Promotion of Industry and Internal Trade (DPIIT) created the Startup India Seed Fund Scheme (SISFS) with an outlay of Rs.945 crore to provide financial assistance to startups for prototype development, proof of concept, market-entry, product trials, and commercialization. 

The Hon’ble Prime Minister, Shri. On January 16, 2021, Narendra Modi announced the SISFS plan. On January 21, 2021, the DPIIT announced this plan following approval from the Expenditure Finance Committee (EFC) and the Honourable Finance Minister.

The funding from venture capital firms and angel investors is available to startups only after providing their proof of concept. Similarly, banks offer loans to asset-backed startups. Thus, it is necessary to provide seed funding to startups in India that have an innovative idea to conduct proof of concept trials.

Through incubators located all around India, the SISFS offers seed cash to qualified entrepreneurs so they can produce proof of concept. It will support approximately 3,600 entrepreneurs through 300 incubators in the next four years, i.e. 2021-2025. The seed fund will enable startups to seek loans from commercial banks or financial institutions or raise investments from angel investors or venture capitalists. 

Objectives of SISFS

The startup ecosystem in India generally suffers from capital inadequacy in the proof of concept development stage. For businesses with strong business concepts, the funding needed during the proof of concept development phase frequently makes or breaks their scenario.

Several innovative business ideas fail due to inadequate critical capital requirements at an early stage for prototype development, proof of concept, market entry, product trials, and commercialization. Giving seed money to such potential businesses can have a compounding impact on proving the viability of their company concepts, which will ultimately result in the creation of jobs.

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Eligibility Criteria for SISFS

The following list of requirements enables a business or incubator to apply for the business India Seed Fund Scheme.

Eligibility Criteria for Startups Under SISFS

• A startup recognized by the DPIIT and incorporated or registered not older than two years at the time of applying.
• Startups should have a business idea to develop a service or product with viable commercialization, market fit, and scope of scaling. 
• To address the intended problem, startups must include technology in their primary service, product, distribution strategy, business plan, or approach.
• Innovation-driven startups that develop novel solutions in fields such as waste management, biotechnology, energy, space, defence, oil and gas, food processing, agriculture, education, financial inclusion, food processing, agriculture, healthcare, and biotechnology are given precedence.
• This project is not open to startups that have received more than Rs. 10 in funding from any Central or State government program. This amount does not include subsidized working space, prize money from competitions and grand challenges, access to labs, a founder monthly allowance, or access to a prototyping facility. 
• The shareholding of an Indian promoter in a startup must be at least 51% at the time of application to the incubator as per the Companies Act, 2013 and SEBI (ICDR) Regulations, 2018. 
• Grants and convertible/debt debentures are two ways that a startup can get seed funding, depending on the terms of the plan.

Eligibility Criteria for Incubators Under SISFS

• The incubator ought to be a recognized legal entity, such as one of the following:
  • Registering or incorporating the society was done under the Societies Registration Act, of 1860.
  • Private Limited Company established or registered by the relevant provisions of the Companies Act 1956 or 2013, respectively.
  • Trust established or registered by the Indian Trusts Act of 1882.
  • the statutory body established by the legislative Act.
• At least two years of incubator operation must have elapsed before the application submission date.
• There should be enough seating in incubators for at least 25 people.
• Before the application deadline, incubators must have at least five startups physically under their care.
• There should be enough seating in incubators for at least 25 people.
• Before the application deadline, incubators must have at least five startups physically under their care.
• A full-time CEO with experience in business development and entrepreneurship is essential for incubators. They should also have a team of mentors who can help companies with legal, financial, and human resources tasks as well as validation and testing.
• It is against the law for incubators to give their incubates seed money obtained from outside private financial sources.
• Incubators ought to have received support from the federal or state governments.
• When it comes to acceptance, the incubators need to fulfil the following criteria if they haven’t gotten assistance from the federal or state governments:
  • must be in use for three years at the very least.
  • On the application date, there must be a minimum of ten distinct businesses going through physical incubation.
  • The last two years’ audited yearly reports must be provided.
• Anything further that the Experts Advisory Committee (EAC) decides upon.

Application for Startup India Seed Fund Scheme

Application Procedure for Startups

If businesses operating under SISFS want to apply for seed capital from incubators, they must follow these procedures:

• On the Startup India Seed Fund Scheme website, click.
• Go to the upper right corner of the homepage and click the ‘Login’ option.
• The ‘Login’ tab will open as a result. The “Startup India” website registration page will appear after you select the “Create Account” tab.
• Once you have entered your name, password, phone number, and email address, click “Register”.
• On the registered mobile number, applicants will receive an OTP. To submit, click “Submit” after entering the OTP.
• Visit the official Startup India Seed Fund Scheme website, then select the “Apply Now” option located on the homepage’s right side.
• Using the username and password you registered on the Startup India website, click the “Apply Now” button under the “For Startups” option.
• It will open, the application form. Complete the application form in its entirety, upload the necessary files, and press the “Submit” button.

Clicking the “Submit” button will cause the application to be received to select which business will get seed funding under the SISFS scheme.

Disbursement of Seed Funds by Incubators to Startups

A qualified startup will receive seed money from the incubator in the following ways:

• Up to Rs. 20 lakh in funding could be provided for prototype development validation, product testing, or proof of concept. The incubator will distribute the funds in instalments according to the completion of tasks like prototyping, making a product suitable for release, testing the product, etc.
• For commercialization, market entry, or scaling up, up to Rs. 50 lakh may be invested through loans, convertible debentures, or debt-linked instruments.
• Only the entrepreneurs may use the seed money for the stated purpose; no facilities may be constructed with it.
• Startups may receive no more than 20% of the incubator’s total grants.
• Funding for startups will be provided at an interest rate that is not higher than the current repo rate whether using loans, convertible debentures, or debt-linked securities.
• When approving the loan, the incubator should specify the duration; nevertheless, it cannot exceed five years. There could be a 12-month embargo for the startups.
• The incubator has granted loans, but they will not be secured because the enterprises are still in their early phases. Therefore, no guarantee from the promoter or any other party is needed.
• Before issuing the first instalment, the incubator will work with qualified startups to execute a legal agreement.

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Implementation of SISFS

An Experts Advisory Committee (EAC) appointed by the DPIIT is in charge of overseeing and carrying out the SISFS. The EAC assesses and chooses the incubators to receive seed money, keeps track of developments, and takes the required actions to ensure that funds are used effectively to support the SISFS’s goals.

The EAC assesses the chosen incubators for grant assistance and awards grants to the chosen incubators in three or more milestone-based instalments, up to a maximum of Rs. 5 crore. Based on its review, the EAC determines the precise number of grants and instalments for each incubator. This committee will be responsible for choosing and assessing firms for seed support.

FAQ’s

Q. For whom is the Startup India Seed Fund Scheme applicable?

Ans- Applications for the program are welcome from startups that are approved by DPIIT and were founded no more than two years before the time of application.

Q. What does seed investment mean for Indian startups?

Ans- The government of India launched the Startup India Seed Fund Scheme (“SISFS”) to give early-stage Indian entrepreneurs financial support. The SISFS seeks to close the funding gap that early-stage and proof-of-concept firms encounter. Grants from SISFS are offered to qualifying entrepreneurs via incubators located all over India.

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