Startup India Seed Fund Scheme

The Department of Promotion of Industry and Internal Trade (DPIIT) has innovated the Startup India Seed Fund Scheme (SISFS) with a budget of Rs. 945 Crores to offer financial support to the emerging startups to assist in their proof of concept, ease their market access prototype advancement, help in product trials and commercialisation. 

The capital from the angel investors and the venture capital firms is accessible to startups only after they present their proof of concept. Furthermore, lenders and banks provide financial support only to startups that are backed by assets. Therefore, it's essential to take steps and ease the seed funding process to the Indian startups that have a ground-breaking idea to help them formulate their proof of concept.

This Startup Seed Fund Scheme facilitates the furnishing of capital for eligible startups with the help of incubators spread across India. This Startup India Seed Fund Scheme plans to support around 3,600 entrepreneurs via 300 incubators in the upcoming four years (2021-2025). This scheme also empowers the startups to get loans from lenders, financial institutions, or commercial banks and generate investments from venture capitalists or angel investors.

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Objectives of Startup India  Seed Fund Scheme 

Developing a startup from scratch is a challenging task; in India, the startups predominantly suffer due to insufficient funds during the proof of concept phase. The following points highlight the objective behind the SISFS:

• Providing adequate seed funds to the startups plays the role of multiplier effect for validating their business ideas, leading to exponential growth in employment opportunities. 

• The Startup India Seed Fund aims to transform India into a country with a robust startup ecosystem in its Tier 2 & 3 cities, as the entrepreneurs in smaller cities cannot get the required funding.

• This Startup Seed Fund Scheme will grant a capital of up to Rs. 5 Crores to the qualified incubators chosen through a select committee. 

• These incubators will have the authority to give out grants with a maximum limit of Rs. 20 Lakhs to support the startups in their prototype development, product trials, or proving their concept. 

• Specific provisions of the Startup India Fund allow an investment of up to Rs. 50 Lakhs to enable the business for commercialisation, paving the way for market entry, or scaling up the business through debt-linked financial instruments or convertible debentures. 

Eligibility Criteria for SISFS

The startups need to fulfil the following eligibility conditions to get grants under the Startup India Seed Fund Scheme:

• To be able to fill out the application form, the startup should be recognised by the DPIIT, and their registration of the startup should not be older than two years.

• Technology should be the driving factor behind the products, business model, core service, and distribution methodology to solve the targeted issues. 

• The business idea should fulfil the parameters of products or services having commercialisation potential, complementing the market demand with a scope of scalability. 

• If any company wishes to formulate pioneering solutions for water management, social impact, waste management, financial inclusion, education, food processing, healthcare, agriculture, biotechnology, space, defence, oil and gas, railways, etc., they would be given preference.

• The startups who have received funding or aid through Central or State Governments up to a threshold of Rs. 10 Lakhs are not eligible to apply under this Startup India Fund Scheme.

• This amount granted under this Startup Seed Fund Scheme does not include any access to subsidised working space, monetary benefits from competitions/grand challenges, lab facilities, monthly allowances, or prototyping services. 

• The Companies Act, 2013 and SEBI (ICDR) Regulations, 2018 mandate that the startups should have an Indian promoter holding at least 51% of the shares.

• The seed support provided in this scheme would be in the form of grants, convertible/debt debentures, etc., as per the scheme guidelines.

Application for Startup India Seed Fund Scheme

The startups need to follow these steps to apply for this seed fund scheme:

• Step 1: Start by visiting the official Startup India Seed Fund Scheme's official website.

• Step 2: Select the 'Login' tab available on the top right corner of the homepage.

• Step 3: Choose the 'Create an Account' option available at the bottom from the pop-up window. This directs you to the registration page of the 'Startup India' website.

• Step 4: Next, you need to enter the details related to the company like name, mobile number and email ID, then create a password and confirm it. Next, choose the 'Register' option.

• Step 5: Further, an OTP is sent to the applicant's registered mobile number. This OTP needs to be validated, and next, hit the 'Submit' button.

• Step 6: After that, you have to visit the official website of Startup India Seed Fund Scheme and choose the 'Apply Now' option from the right-hand side corner of the homepage. 

• Step 7: In the 'For Startups' option, click on the 'Apply Now' button to log in. Here you need to provide the username and password generated during registration.

• Step 8: This takes you to the application form window. You need to enter all the required details, upload the documents, and click on the 'Submit' button. Once you click the 'Submit' button, your application will be submitted.

Disbursement of Seed Fund by Incubators to Startups

The incubators will distribute the Seed Fund once the startup is found eligible as per the following parameters: 

• A grant of up to Rs. 20 Lakhs will be provided to develop the prototype, product trails, or carry out proof of concept. The amount will be paid in instalments once the milestones are achieved. 

• The grant of up to Rs. 50 Lakhs will be offered to the startups for commercialisation or scaling up supported by debt-linked mechanisms. 

• The seed fund received by the startups cannot be used to build facilities; it is mandatory to use it only for the intended purposes. 

• The incubator finalises the tenure when he approves the loan, subject to a maximum duration of five years. A moratorium period of 12 months can be offered to the startups. 

• The loans sanctioned are unsecured loans as the startups are in their initial phases; therefore, the promoters need not submit any guarantee. 

• Before releasing the first instalment (within 60 days of application), the incubator signs a legal agreement with the concerned startup.

• The fund would be strictly transferred to the company account of the startup.

• The startups must submit a utilisation certificate and an interim progress update for the release of subsequent instalments.

Implementation of SISFS

To monitor and execute the rules and regulations of this Startup India Fund, the DPIIT has formed an Experts Advisory Committee (EAC). The EAC assesses and chooses the incubators for granting the seed funds, monitoring the progress and all other administrative tasks required for efficient funds utilisation and accomplishing objectives set by the SISFS. The EAC is the deciding authority for the value of grants instalment size, and directs the incubators based on its assessment. 

All the incubators under the said scheme need to form an Incubator Seed Management Committee (ISMC), including experts responsible for selecting and evaluating the startups for the seed fund scheme. Incubators play the role of shortlisting the eligible startup, which would be granted a chance to present in front of the ISMC. After that, ISMC evaluates the applicants and chooses the startups eligible for granting the seed fund within 45 days of the receipt of the application.