On 21st January 2021, the Government of India via its notification no. S.O 414(E) had introduced the Startup India Seed Fund Scheme (SISFS) with the main objective of providing financial assistance to startups on proof of concept, prototype development, product trials, market entry and commercialization.
The Scheme was implemented by the Department for Promotion and Industry and Internal Trade (“DPIIT”) and aims to provide financial assistance to startups that have been recognised by the DPIIT.
The incorporation of the startup should not be more than two years at the time of application. The corpus of INR 945 Crore will be disbursed across India through selected incubators for giving seed financing to qualified companies through qualified hatcheries.
Objective Of The Scheme
The Scheme is launched to support the entrepreneurs and lead the way for them to commence and set up their companies so that they can work on their ideas and concepts.
The Scheme facilitates financial aid to new startups and after their ideas, the concept has been approved the aid from angel investors and venture capital firms becomes available to them.
The scheme is similar to a bank providing loans to only applicants who are backed by their assets. The seed fund is provided to eligible startups through incubators across India.
After receiving the seed fund the startups will be provided with physical infrastructure, support for testing mentoring for prototype or commercialization, human resources and legal compliances.
The scheme aims to help 3,600 new companies through 300 incubators. An Experts Advisory Committee (EAC) has been established by the DPIIT, which will be monitoring the Scheme.
Whereas incubators will be selected based on the number and performance of startups, quality of the team of incubator, available infrastructure and testing labs facilities which they possess.
The EAC will evaluate and select incubators for allotment of seed funds, monitor the progress of the appropriate incubators for the categorisation of Seed Fund and their primary aim is towards the fulfilment of the purpose and objectives of the Scheme.
Eligibility Criteria for Startup
Startup India Seed Fund Scheme shall be available to the startups which fulfil the following criteria:
1. The startup has to be recognized by the Department for Promotion and Industry and Internal Trade. It should not be incorporated for more than two years since application.
2. The startup must have a business idea to develop a product/service with a market fit, viable commercialization, and scope of scaling.
3. The startup should be utilizing the technology in its primary product/service, business model or distribution model and methodology to resolve the issue being targeted.
4. Preference would be given to startups working on innovative solutions in the sectors such as social impact, waste management, water management, education, agriculture, food processing, healthcare, energy, defence, space, railways and gas, etc.
5. Startups should not have received any monetary support under any Central or State Government Scheme which is more than ten lakh rupees. However, this does not include monetary benefits received from competitions and grand challenges, subsidized working space, founder monthly allowance, access to labs, or access to prototyping facility.
6. Indian promoters should own at least 51% since the date of application to incubators as per Companies Act 2013 and SEBI (ICDR) Regulations 2018.
7. A Startup shall not receive seed support more than once as mentioned in the provisions of para 8.1 (i) and 8.1 (ii), respectively.
Eligibility Criteria for Incubators
Startup India Seed Fund Scheme shall be accessible to the following incubator in India:
1. The incubator must have been registered under:
- Society Registration Act 1860, or
- A Trust under Indian Trusts Act 1882, or
- Companies Act 2013 as a Private Limited Company, or
- A statutory body instituted under an act of the legislature.
2. The incubator shall be operational for at least two years on the date of application to the Scheme.
3. Under the incubator, at least 5 startups must be physically undergoing the incubation process.
4. The incubator must have a sitting arrangement for at least 25 individuals.
5. There must be a full-time CEO along with a full-fledged team assigned for mentoring the startups in testing and other required fields.
6. Exclusion of disbursement of seed fund to incubates using any funds from a third-party private entity.
7. Mandatory assistance from the Central/State government(s) by the incubator.
Incubators must have been supported by Central Government or State Government. In the event, where the assistance is not granted by the State/Central government, then Incubator shall be functioning for at least three years and shall have ten startups undergoing the process and must furnish the audited reports of the last two years. Additional criteria must be decided by Experts Advisory Committee (EAC) if any.
Assistance to Incubators
The incubators shall be evaluated by the Experts Advisory Committee to grant assistance. The grant can amount up to INR 5 Crores based on three or more milestones in instalments accordingly and the exact amount to be announced by EAC as per its evaluation.
Selection of Startups
Selection of the startups is done through Incubator Seed Management Committee (ISMC), which shall be constituted by incubators for evaluation.
Online Applications are to be filled by the candidates on the Startup India portal. Startup owners can apply for seed funds to any three incubators for the Scheme according to their preference.
After adequate evaluation of the application by ISMC. The applicants will be shortlisted after which the Incubators will receive their application within forty-five days followed by the disbursement of the Seed fund if approved.
All the information about the progress of the evaluation of startups will be uploaded on the Startup India portal. In case, the application is rejected for any reason, the applicant is free to apply again.
Benefits of Startup India Seed Fund Scheme
The Scheme provides long term benefits to startups by giving them a significant leap in their business.
With the development of startups in India, there will be a drastic increase in employment opportunities and subsequent growth in the overall development of the country.
Further, an entrepreneur with potential coupled with both scientific and technical knowledge would usher into a fresh beginning with the Scheme which will result in a substantial increase in various business sectors.
In a highly competitive market, most of the startups can barely cross the preliminary stages and live with their hopes high of being funded as they lack early capital investment.
To capitalize on an idea, it is important to peruse the idea without any limitations thus, The Government of India has come up with this scheme so that all ideas and innovations of startups can be supported and nurtured.
In compliance with the Scheme, it will assist startups and the overall economy to flow high and upwards with no looking back.
This Scheme can take entrepreneur’s ideas and innovations to a higher degree of success which will result in an indelible footprint in India’s growth.