Startup India Seed Fund Scheme | SISFS
The objective of this Startup India Seed Fund scheme is to provide financial support to startups for suitable prototype development, product testing, market entry and commercialization. The launch of this scheme was officially announced by the Government of India on February 5, 2021 with the approval of SISFS. Today, through this article, we will provide you information about the major objectives related to Startup India Seed Fund Scheme and its importance in today’s scenario.
Startup India Seed Fund Scheme
The main objective of the Startup India Seed Fund Scheme is to provide financial support to startups at the initial stage of the project itself. The scheme has been launched for a period of four years from 2021-22. Under this scheme, the government aims to provide seed funding to eligible startups in a corpus of Rs 945 crore across the country over the next 4 years. Government has targeted to support more than 3600 Startups under Startup India Seed Fund Scheme. This scheme has been started in line with the Atmanirbhar Bharat Campaign .
Easy availability of capital is essential for entrepreneurs at the early stages of growth of an enterprise.
Funding from angel investors and venture capital firms becomes available to startups only after the proof of concept has been provided. Similarly, banks provide loans only to asset-backed applicants. It is essential to provide seed funding to startups with an innovative idea to conduct proof of concept trials.
DPIIT has created Startup India Seed Fund Scheme (SISFS) with an outlay of INR 945 Crore to provide financial assistance to startups for Proof of Concept, prototype development, product trials, market entry, and commercialization.It will support an estimated 3,600 entrepreneurs through 300 incubators in the next 4 years.
The Hon’ble Prime Minister of India announced the scheme in his Grand Plenary address of Prarambh: Startup India International Summit on 16th January 2021. After approval of EFC and Hon’ble Finance Minister, the scheme has been notified on 21.01.2021.
The Seed Fund will be disbursed to eligible startups through eligible incubators across India.
Objectives of Startup India Seed Fund Scheme
The Indian startup ecosystem suffers from capital inadequacy in the seed and ‘Proof of Concept’ development stage.
The capital required at this stage often presents a make or break situation for startups with good business ideas.
Many innovative business ideas fail to take off due to the absence of this critical capital required at an early stage for proof of concept, prototype development, product trials, market entry and commercialization.
Seed Fund offered to such promising cases can have a multiplier effect in validation of business ideas of many startups, leading to employment generation.
Certain criteria have been prescribed for disbursement of seed funds from applicants to eligible start-ups.
- Under this scheme, Rs 20 lakh will be provided as a grant to startups for proof of concept, or prototype development, or product testing.
- Startups will be provided an investment of 50 lakhs for market penetration, commercialization, or scaling up through convertible debentures or debt or debt-linked instruments.
What is the need for Startup Seed Funding Scheme?
The startup ecosystem in India lacks capital to strengthen the ‘idea’ and its development stage. Under this scheme, the significant capital required for the development of good business startups is provided by the government. Many innovative business ideas fail in the early startup stage due to lack of capital. That is why the government provides seed funding to promising startups. This seed funding has a multiplier effect in validating business ideas of startups and helps in job creation. Under this scheme, the Startup Ranking Framework has been set up by the Government of India in the States and Union Territories. So that the startup ecosystem can be developed holistically.
Eligible for Startup India Seed Fund Scheme
The eligibility criteria for applying under the Startup India Seed Fund Scheme will be as follows:
- The applicant’s startup must be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT).
- It must have incorporated not more than 2 years ago at the time of application
- Preference would be given to startups creating innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defence, space, railways, oil and gas, textiles, etc.
- Startup applicant should not have received financial assistance of more than Rs 10 lakh under any other central or state government scheme.
- Indian promoters should hold at least 51% stake in the startup at the time of application.
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What is the Experts Advisory Committee (EAC) under SISFS?
An Expert Advisory Committee has been constituted by DPIIT for overall execution and monitoring of Startup India Seed Fund Scheme. Which will monitor, select and evaluate the progress of the incubators for allocation of seed funds. Along with this, necessary measures will also be taken for efficient use of the fund. Members from different departments shall be appointed in EAC
- 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)
- At least three expert members nominated by Secretary, DPIIT from the startup ecosystem, investors, experts in the domain of R&D, technology development and commercialization, entrepreneurship and other relevant domains
To boost the Startup ecosystem in India, Shri Piyush Goyal, Honourable Cabinet Minister for Railways, Commerce and Industry, Consumer Affairs, Food and Public Distribution launched the Startup India Seed Fund Scheme on 19th April 2021.
The scheme aims to provide startups with financial assistance at their early stages such as proof of concept, prototyping, product trials, market entry and commercialization.
Once a startup gets access to capital at the early stage, it improves the potential for the enterprise to scale to a level where funding can be sought from angel investors, venture capital firms, Banks and other financial institutions.
Department for Promotion of Industry and Internal Trade (DPIIT) has created an Experts Advisory Committee (EAC) to execute and monitor the Startup India Seed Fund Scheme. The EAC will select eligible incubators who will be provided grants of upto Rs 5 Crores each. In turn, the selected incubators will provide startups with up to Rs 20 lakhs for validation of Proof of Concept, prototype development, product trials to startups.
Moreover, up to Rs 50 lakhs shall be provided to the startups for market entry, commercialization, or scaling up through convertible debentures or debt-linked instruments. Detailed guidelines of the Startup India Seed Fund Scheme are available on the Startup India portal.
It is anticipated that the startups that receive support at their early stages shall create significant employment opportunities for everyone.
Key points of the SISFS
- 3600 Startups expected to benefit from SISFS
- ~300 Virtual Incubators to be promoted for supporting startups
- INR 945 crore corpus divided over 4 years, starting FY2021-22, to be disbursed through eligible incubators
- Year-round ‘Call for Applications’ for Incubators and Startups
- Sector-agnostic
- No mandatory physical incubation
- PAN-India startup programme
- Startups can apply to 3 incubators simultaneously
Eligibility Criteria
- A startup, recognized by DPIIT, incorporated not more than 2 years ago at the time of application.
To get DPIIT-recognized, please visit https://www.startupindia.gov.in/content/sih/en/startupgov/startup-recognition-page.html - The startup must have a business idea to develop a product or a service with a market fit, viable commercialization, and scope of scaling.
- The startup should be using technology in its core product or service, or business model, or distribution model, or methodology to solve the problem being targeted.
- Preference would be given to startups creating innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defence, space, railways, oil and gas, textiles, etc.
- Startup should not have received more than Rs 10 lakh of monetary support under any other Central or State Government scheme. This does not include prize money from competitions and grand challenges, subsidized working space, founder monthly allowance, access to labs, or access to prototyping facility.
- Shareholding by Indian promoters in the startup should be at least 51% at the time of application to the incubator for the scheme, as per Companies Act, 2013 and SEBI (ICDR) Regulations, 2018.
- A startup applicant can avail seed support in the form of grant and debt/convertible debentures each once as per the guidelines of the scheme.
