Startup India Seed Fund Scheme

INTRODUCTION

On 16th Jan 2016, Shri Narendra Modi, Prime Minister of India had revealed an action plan for the Startup India initiative to create a favourable atmosphere for the start-ups. Many activities were undertaken to motivate the start-ups so that they can come up with their new or innovative business ideas and help the Indian economy to grow.

On 16th Jan 2021, the Startup India initiative has completed its 5 years and thus ‘Prarambh: Startup India International Summit’ was organized. The Start-up India Seed Fund Scheme (SISFS) was announced by Shri Narendra Modi, Prime Minister of India while addressing the summit. On 19th April 2021, this scheme (SISFS) was launched by Shri Piyush Goyal Ministry of Commerce and Industry with a budget of Rs. 945 Crore. SISFS is approved for four years, starting from 2021-22. In May 2020 the Atmanirbhar Bharat Campaign was launched and this scheme is in line with this campaign.

Purpose of launching this scheme

Capital is the foremost requirement for entrepreneurs at the initial stages of their business for its growth.

Investment or funding cannot be raised by start-ups if the proof of concept is not available to them. Similarly, commercial banks also don’t give loans to such entity, which has just started their business or lack assets.

To resolve the above issues of start-ups, the government of India has launched the Startup India Seed Fund Scheme (SISFS). According to the govt., in the next 4-5 years this scheme will help around 3600 start-ups through 300 incubators.

Objective: The objective of this scheme is to offer financial support to start-ups for the product trial, proof of concept, market-entry, prototype development and commercialization. This will help start-ups to raise investment from investors or seek loans from financial institutes or banks.

Features of Startup India Seed Fund Scheme

  • Start-ups from any sector can apply for this scheme. This scheme is not restricted to particular sectors.
  • Year-round start-ups & incubators can apply for this scheme.
  • This is the PAN-India Start-up programme.
  • Physical incubation is not compulsory.
  • This scheme allows Start-ups to apply to 3 different incubators as per their preference.

Operation of Startup India Seed Fund

Startup India Seed Fund will operate through a series of steps, as given below:

  1. Startup India Seed Fund Scheme (SISFS) was created by Department for Promotion of Industry and Internal Trade (DPIIT).
  2. To run the scheme and monitor its progress, DPIIT has formed an Experts Advisory Committee (EAC) comprising some of the Government representatives & few Industry experts.
  3. Next, on receiving the applications from the incubators, EAC evaluates and select eligible incubators and provide a grant.
  4. Last, when start-ups from all over the country apply for the scheme, the incubators select the eligible ones and disburse the Seed Fund to them, as per their business requirement.

Which Start-up is eligible for this scheme?

The Start-up fulfils the following criteria is eligible to avail the benefits of this scheme:

  • The business idea (product or service) of a start-up must have a demand in the market, able to generate employment opportunities or create wealth.
  • Technology must be used in the business or distribution model, core product or service or methodology.
  • At the time of applying for this scheme, a start-up incorporated not more than 2 years ago and must be recognized by DPIIT.
  • A start-up should not receive financial support of more than Rs. 10 Lakh under any other scheme of the Central or State Government.
  • According to the Companies Act, 2013 and SEBI Regulations, 2018, at the time of application minimum 51% shareholding should be done by Indian promoters in the start-up.
  • Start-ups belong to any sector can apply for this scheme. However, start-ups are preferred offering innovative services in sectors like waste management, financial inclusion, agriculture, healthcare, mobility, space, textiles, water management, education, energy, railways etc.

Which Incubator is eligible for this scheme?

The Incubators comes under the following criteria is eligible for this scheme:

  • The first and foremost requirement is that the incubator should be a legal entity.
  • On the date of application, the incubator must be operational for minimum 2 years.
  • The incubator must have a seating capacity of minimum 25 individuals.
  • On the date of application, minimum 5 start-ups are undergoing the process of physical incubation under the incubator.
  • The incubator must have an experienced Chief Executive Officer with a team of people working full time for monitoring start-ups in each aspect.
  • The incubator is not allowed to use the funds of any private entity or third party for disbursing the seed fund to start-ups.
  • In the past, the incubator has taken assistance from the Central or State Government. And if this is not the case, then the following conditions should be fulfilled by the incubator to apply under this scheme:
  1. Instead of 2 years, the incubator must be operational for at least 3 years.
  2. 10 Start-ups undergoing physical incubation on the date of application to the scheme.
  3. The last 2 years audited annual reports are required to be present by the incubator.

Application Process for this scheme

Eligible Start-ups or start-ups recognized by DPIIT can apply online on the Startup India portal. The application process is completely online and no application fees or other fees will be charged by the incubator under this scheme. Start-ups can apply to 3 different incubators as per their choice and these selected incubators will form the Incubator Seed Management Committee (ISMC) to review the applications received and select the eligible ones for Seed Fund within 45 days of receipt of applications. This committee will assess the start-up performance in future also and accordingly disburse further tranches.

How much Seed Fund is provided to Start-up under this scheme?

The incubators selected by the EAC received grants of up to Rs. 5 Crore. From this amount, grants of up to Rs. 20 Lakh will be provided to the eligible start-ups for validation of proof of concept or product trials or prototype development. For commercialization or market entry or scaling up investment of up to Rs. 50 Lakh or debt/ convertible debenture is rendered to the start-ups by the incubators. The Seed Fund is offered to start-ups in the form of debt/ convertible debentures or grant.

Experts Advisory Committee:

To execute and supervise the working of this scheme, the Department for Promotion of Industry and Internal Trade (DPIIT) has constituted an Experts Advisory Committee (EAC).

To fulfil the objectives of this scheme, the members of this committee will be responsible for the evaluation and selection of incubators for Seed funds allotment, review progress and for taking all essential measures for optimal utilization of resources or available funds. When eligible start-ups apply for this scheme, the Seed Fund will be disbursed to them through eligible incubators all over the country.

The committee comprises of the following experts or members, some of them are government representatives and others are industry experts:

  1. Shri H.K. Mittal- Chairman
  2. Shri Shashank Priya- Additional Secretary & Financial Advisor, DPIIT
  3. Shri Anil Agarwal- Additional Secretary, DPIIT (Convenor)
  4. Dr. Alka Sharma- Advisor DBT
  5. Dr. Anita Gupta- Head (NEB), DST
  6. Shri Jeet Vijayvargiya- CEO, MeitY Startup Hub
  7. Dr. K Srinivas- Pr.Scientist (RSM ICAR-NAARM) & CEO, NAARM TBI a-IDEA
  8. Shri Saji Gopinath- Professor, IIM Kozhikode
  9. Smt. Renuka Ramnath- Indian Private Equity and Venture Capital Association
  10. Smt. Padmaja Ruparel- Co-founder IAN & Founding Partner IAN Fund
  11. Smt. Anjali Bansal- Founder, Avaana Capital
  12. Smt. Shruthi Kannan- Head, Cisco Launchpad
  13. Dr Apoorva Ranjan Sharma- Co-founder Venture Catalysts & 9 Unicorns.

It is expected that after the launching of this scheme a robust start-up ecosystem will be created across India, especially in tier two and tier three regions of the country, where adequate funds are not available. SISFS would support start-ups in rural areas so that they can come forward with their innovative business solutions.

 

Other related Government Initiatives:

  • Startup Innovative Challenges – This is a kind of a golden opportunity for the start-ups to expand their channel of networking and to raise the fund from banks or financial institutes without making any extra effort.
  • National Startup Awards – This aims to recognize and reward start-ups doing outstanding work in developing a robust ecosystem in the country.
  • SCO Startup Forum – In Oct 2020 Shanghai Cooperation Organization (SCO) Startup Forum was created for the development of start-up ecosystems and to improve them collectively. SCO Startup Forum is the first Startup Forum launched by the Govt. of India for start-ups.
  • Assign Ranks to States & UTs for building Startup Ecosystems – All the States and Union Territories are providing support to the start-ups for their development and improvement. It is an evaluation tool to gauge and accordingly, assign ranks to all the States and UTs.
  • Prarambh Summit – On the successful completion of 5 years of Startup India initiative, the ‘Prarambh’ Summit was organized by the Central Govt. This gives a chance to the start-ups or young entrepreneurs not only across the country but from all over the world to come forward with their innovative or fresh business ideas, invention and solutions.

Concept of Seed Fund:

As the name denotes, Seed Fund is the first official money that a start-up or any other business enterprise can raise. This supports the start-up in getting adequate funds at the initial stage of their business for proof of concept to market-entry. Investors may include friends, incubators, venture capital company, family, founders etc, for seed funding. Investors which usually participate in seed funding is known as ‘angel investor’. The role of angel investors is to motivate riskier ventures by investing in their business and in return, they expect an equity stake in their organization.

Role of government department in promotion of industry and internal trade:

DPIIT was earlier knowns as Department of Industrial Policy & Promotion which falls under the Ministry of Commerce and Industry.

In 2019, DPIIT was authorized with the power to look into the matter of Trade and Startup, welfare of traders and employees working there.

The purpose of DPIIT is to enhance industrial development of the country by bringing in new technology through investment, attract more foreign direct investment and ensure developing environment for industries.

Important projects of DPIIT:

  • Business Reform Action Plan (BRAP) ranking of states
  • Industrial Corridors
  • Invest India
  • Make in India initiave.

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