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Karan Singh
| Updated: 28 Jan, 2022 | Category: Latest News

Seed Funding For Startups – An Initiative By The Government

Seed Funding for Startups

The Startup India initiative by the Indian Government predicts building a strong Startup environment in India for nurturing innovation and giving opportunities to budding entrepreneurs. Also, in the Union Budget of 2020, the Government of India set up an Investment Clearance Cell for early phase Startups. This Cell provides end-to-end support and facilitation for clearance and investment on both State & Centre levels. Scroll down to know more about Seed Funding for Startups by the Government of India.

What do you mean by Seed Funding?

Seed Funding for Startups is an initial stage investment that aids a potentially new business start and set up its idea or process before the company starts generating or making revenues or until further investment is required. Investment is financial fuel to any Startup and Seed Funding is the first drop of the fuel. Seed Funding for Startups is also known as Seed Money, Initial Funding, or Startup Fund.

There are different types of Seed Funding for Startups in India and you can check the same below:

  1. Crowdfunding;
  2. Corporate Seed Funding;
  3. Bootstrapping (Personal funding);
  4. Debt funding;
  5. Incubators;
  6. Accelerators;
  7. Angel Investors;
  8. Venture Capital Funding;
  9. Angel funds or Angel Investors.

Seed Funding for Startups from the Government of India

The Central Government see the extraordinary talent of India’ young entrepreneurs, their dedication and eagerness to grow larger and stronger. To that end, the Indian Government has taken steps to boost Startups, financial infrastructure, and Research & Development.

The Indian Government has so far recognised the following sector for the Seed Funding and they are:

  • Education;
  • Financial Inclusion;
  • Smart Cities;
  • Healthcare;
  • Agriculture;
  • Energy and Environment;
  • Smart Transportation.

Accordingly, it set up the Fund of Funds (FSS) for Startups under SIDBI (Small Industries Development Bank of India) to extend its support to Indian Startups. This Fund of Funds (FSS) was set up in 2016 under SIBDI, making downstream investment in Venture Capital (VC) Funds and Alternate Investment Funds (AIFs) registered under SEBI, which further invest in Startups.

What is Startup India Seed Fund Scheme (SISFS)?

Funding from Venture Capitals and Angel Investors becomes available to Startups only after the proof of concept has been provided. Similarly, banks provide loans only to asset-backed applicants. It is vital to provide Seed Funding for Startups with an innovative idea to conduct proof of concept trials. DPIIT has created SISFS or Startup India Seed Fund Scheme with an outlay of Rs. 945 crore to give financial assistance to Startups for Proof of Concept, product trials, commercialisation, prototype development, and market entry. It will support an estimated 3,600 entrepreneurs via 300 incubators in the next four years.

Objectives of SISFS

The Indian Startup environment suffers from capital insufficiency in the seed and Proof of Concept development phase. The capital required at this phase often presents a make or break situation for Startups with good business ideas or concepts. Many innovative business ideas/concepts fail to take off due to the absence of this serious capital required at an initial phase for proof of concept, market entry, product trials, and commercialisation. Seed Fund provided to such promising case can have a multiplier effect in the validation of business ideas or thoughts of many Startups, leading to employment generation.

How can you Get Seed Funding for Startups from the Government of India?

To get Seed Funding for Startups from the Government of India, you need to follow the step mentioned below:

  1. First, you have to register on the website of Start-up India and get certified as per the process listed;
  2. Once your registered on the official website of Startup India, the Startup should satisfy the metrics to be considered or deemed to get the Seed Fund;
  3. Startups don’t get Seed Funds directly from the Government of India; they will get seed from the Alternate Investment Funds (Venture Capitalist registered under SEBI). Therefore, startup companies have to approach Alternate Investment Funds for presenting their innovation or ideas. These Alternate Investment Funds are Venture Capitalist registered under SEBI[1];
  4. Once the idea is approved, the Alternate Investment Fund will examine and recommend to SIDBI to disburse the said Seed Fund to such startups.

Repayment of Seed Funding for Startups

Small Industries Development Bank of India or SIDBI while disbursing the Seed Funding, will provide for terms & conditions and tenure for the repayment of the Seed Funding for Startups. Following is the table where you can peruse an overview of the Seed Funding trends over the past few years:

Financial Year Government Seed Fund Corpus (Rs.) Number of Startups got the Benefit
2015-16 500 Crore   A total of 243 Startups received Seed Funding from Government of India.
2016-17 100  Crore
2017-18 1150 Crore
2018-19 1115 Crore
2019-20 431 Crore
2020-21 1054 Crore  

Conclusion

Apart from the above-mentioned manners, the Government of India also helps Startups in obtaining Seed Funding through a Price Incentive scheme and money challenges. The Indian Government organises these contests or workshops in collaboration with various sponsors from around the globe.

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Karan Singh

A legal writing enthusiast, a wanderer, and a zealous reader. After gaining a lot of knowledge about the diverse legal topics and developing research skills, Karan joined the league of legal content writers to deliver quality-rich blogs.

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