Startup India Seed Fund Scheme

What is Startup India Seed Fund Scheme? What are its objective? Why is it needed? What is the significance of the scheme? Read further to know more.

Startup India is an important government initiative to promote the startup ecosystem in India. Startup India Seed Fund Scheme is the flagship scheme under the Startup India initiative. The goal of the Startup India Seed Fund Scheme is to give entrepreneurs financial support for market entry, product testing, prototype creation, proof of concept, and commercialization.

The performance of the Startup India Seed Fund Scheme was recently disclosed by Shri Som Parkash, Minister of State for Commerce and Industry (SISFS). Startups are offered support at various stages of their business cycles through the Startup India initiative’s flagship programmes, including the Fund of Funds for Startups (FFS), Startup India Seed Fund Scheme (SISFS), and Credit Guarantee Scheme for Startups (CGSS).

Startup India Seed Fund Scheme

One of the most prominent programmes of the Startup India initiative is the Startup India Seed Fund Scheme (SISFS). The Startup India Seed Fund Scheme (SISFS) went into operation on April 1st, 2021.

The programme was revealed at the “Startup India International Summit” in Prarambh. which commemorates the Startup India initiative’s fifth year.

Objective

• First and foremost, Startup India Seed Fund Scheme (SISFS) strives to aid entrepreneurs financially. Proof of concept, prototype development, product testing, market-entry, and commercialization are all supported.
• Second, getting companies to a beginner’s level would be beneficial. Following that, companies will be allowed to obtain loans from commercial banks or financial institutions or raise funds from angel investors or venture capitalists.

Implementation

An Experts Advisory Committee was established by the Department for Promotion of Industry and Internal Trade (DPIIT) (EAC). It will be in charge of managing and overseeing the Startup India Seed Fund Scheme overall.

Duration

The scheme would have a 945 crore rupee corpus. The next four years will be divided up into this.

Finance

The Startup India Seed Fund Scheme (SISFS) has been given approval with Rs. 945 crore capital for a 4-year period beginning in 2021–2022.

Performance

As of the end of December 2022, 133 incubators have received a total of Rs. 211.63 crore of the Rs. 477.25 crores that had been sanctioned for them under the Scheme.

Also read: Venture Capital

Need for the scheme

The following are the main need of the scheme.

• For entrepreneurs in the early stages of an enterprise’s growth, easy access to cash is essential.
• Financing is only given by angel investors and venture capital firms after a proof of concept has been shown. Similarly, banks only lend money to applicants who can vouch for their assets.
• In order for startups with creative ideas to execute proof of concept tests, seed money is required.
• The seed and “Proof of Concept” stages of the Indian startup ecosystem’s development are plagued by a lack of enough finance. Startups with solid business concepts frequently find themselves in a make-or-break situation due to the funding needed at this point.
• Due to the lack of this crucial cash needed early, many innovative business concepts fail to take off. If seed capital is made available to such promising situations, it may have a multiplier effect in validating the business plans of numerous firms, creating jobs for the nation.
• In order to increase the support of States and UTs in building their startup ecosystems holistically, a States Startup Ranking Framework has been established in India.

Funding of Startup India Seed Fund Scheme

• First, cash would be distributed to qualifying entrepreneurs throughout India via eligible incubators.
• Second, the qualified incubators chosen by the EAC would receive grants worth up to Rs 5 crores.
• Thirdly, the chosen incubators will award funds to companies for the development of prototypes, product trials, or Proof of Concept validation in the amount of up to Rs 20 lakhs.
• Finally, through convertible debentures or debt-linked securities, Startups will also obtain further investments of up to Rs 50 lakhs for market entry, commercialisation, or scaling up.

Seed funding

A very early investment, known as seed funding or seed-stage finance, tries to support a company’s expansion and ability to raise funds on its own. Investors frequently receive an equity stake in return for their capital investment, also known as seed money or seed capital. The founders of the company, who are the investors, may bootstrap their startup by using their own funds as seed capital.

Startup India Seed Fund Scheme implementation

• The Government has established an Experts Advisory Committee (EAC) to oversee the overall implementation and monitoring of the SISFS in accordance with the Scheme’s provisions.
• Incubators are evaluated and chosen by the EAC for funding under the Scheme.
• Based on the criteria listed in the Scheme guidelines, the chosen incubators shortlist the startups.

Experts Advisory Committee (EAC) under SISFS

The Startup India Seed Fund Scheme will be overseen and executed overall by an expert advisory committee that will be created by the Experts Advisory Committee (EAC) under SISFS DPIIT. The EAC will assess and choose incubators for the distribution of Seed Funds, track progress, and take all necessary actions to ensure the effective use of funds.

Various departments’ representatives must be selected for the EAC, which consists of:

• A Chairman
• Financial Advisor, DPIIT or his representative
• Additional Secretary/ Joint Secretary/ Director/ Deputy Secretary, DPIIT
• One Representative each from:
• Department of Biotechnology (DBT)
• Department of Science & Technology (DST)
• Ministry of Electronics and Information Technology (MeiTY)
• Indian Council of Agricultural Research (ICAR)
• NITI Aayog

The Secretary, DPIIT, and at least three experts from the startup ecosystem, investors, R&D, technology development and commercialization, entrepreneurship, and other related fields.

Eligibility for SISFS

The following qualifications must be met by a startup in order to qualify for the Startup India Seed Fund Scheme:

• The Department for Promotion of Industry and Internal Trade must acknowledge the startup (DPIIT)
• At the time of application, it must not have been more than two years from incorporation.
• Startups developing cutting-edge solutions in fields like social impact, waste management, water management, financial inclusion, the inclusion of underserved populations, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defence, space, railways, oil and gas, textiles, etc. would be given preference.
• Under any other Central or State Government programme, the startup should not have received financial support totalling more than Rs 10 lakh.
• When applying to the incubator for the programme, the firm must have at least 51% of its equity owned by Indian promoters.

Related Government Initiatives

• Startup Innovation Challenges: This is a great chance for any startup to make the most of their networking and fundraising efforts. Related Government Initiatives:
• The National Startup Awards are designed to honour and reward exceptional entrepreneurs and ecosystem builders who are promoting economic dynamism by fostering innovation and introducing competition.
• States’ Support for Startup Ecosystems: It is an advanced evaluation tool designed to increase State and UT assistance for the comprehensive development of respective startup ecosystems.
• Startup Forum for SCO: In order to cooperatively create and enhance startup ecosystems, the Shanghai Cooperation Organization (SCO) organised its first-ever Startup Forum in October 2020.
• Prarambh: The “Prarambh” Summit aims to give companies and young people from around the world a stage to present fresh concepts, innovation, and invention

Significance

• Through 300 incubators, the fund is anticipated to help about 3,600 firms and strengthen the startup environment, especially in tier-2 and tier-3 cities.
• It will provide seed finance, spur creativity, promote game-changing concepts, ease implementation, and usher in the startup revolution.
• It will build a robust startup ecosystem, especially in non-metros, which frequently lack sufficient finance.
• It will enable incubators to apply for funding via a website established by the DPIIT( Department for Promotion of Industry and Internal Trade)

Conclusion

DPIIT has established an Experts Advisory Committee (EAC) to carry out and oversee the plan. It will assess and choose incubators for the distribution of Seed Funds, track progress, and take all necessary actions to ensure the effective use of funds in order to achieve the scheme’s goals.

Read: Venture capital

Article Written By: Atheena Fathima Riyas