Easy availability of funding is imperative for startups at the early stages of growth. Funding from venture capital or angel investors is accessible to startups only after the proof of the business concept. Likewise, banks provide credits only to asset-backed up applicants. It is imperative to facilitate seed funding to startups with a unique idea to conduct proof of concept trials.
What is the Aim of Startup India Seed Fund Scheme?
Startup India Seed Fund Scheme (SISFS) envisages facilitating fiscal aid to startups for proof of concept, product trials, prototype development, commercialization, and market entry.
This would empower startups to reach to phase where they can procure funding from venture capitalists or angel investors or seek credits from financial institutions or commercial banks. The seed fund will be available to startups via eligible incubators across India.
Why Government Introduce Startup India Seed Fund Scheme?
Most startups encounter capital shortage in the seed & ‘Proof of Concept phase. The capital required at this particular phase offers for make or break situation for startups having innovative business ideas.
Many business ideas encounter failure in their initial stage due to the lack of this critical capital required for proof of concept, product trials, prototype development, and commercialization. Seed funds provided to such cases might have a multiplier effect on the business ideas of many startups, leading to job creation.
Eligibility Criteria for Startups to Avail Startup India Seed Fund Scheme
Startup India Seed Fund Scheme shall be available to the following eligible candidates:-
- A startup with two years of service life and recognized by DPIIT qualify for this scheme.
- Startup must have a viable business idea that embraces commercialization, the scope of scaling, and market fit.
- Startup must be using technology in its business model or methodology to resolve the issue being targeted.
- Preference would be given to innovative solutions in water management, education, healthcare, railways, financial inclusion, defense, textiles, mobility, biotechnology, and energy.
- Startups should not receive monetary support of more than INR 10 lakh under other Central or State Government schemes. This does not include subsidized working space, access to labs, access to prototyping facility, founder monthly allowance, or prize money from competitions.
- Shareholding held by promoters in the startup must be at least 51% at the event of application filing to the incubator, as per SEBI (ICDR) Regulations, 2018 and Companies Act, 2013
- Any startup will not have access to seed support more than once, as mentioned in the provisions of para 8.1 (i) and 8.1 (ii), respectively
Eligibility Criteria for Incubators to Avail Startup India Seed Fund Scheme
Startup India Seed Fund Scheme shall be accessible to the following incubator in India:
- Incubator must be registered as a legal entity:
- A society working under the Societies Registration Act 1860, or
- A Trust working under Indian Trusts Act 1882, or
- A Private Limited company working under Companies Act 1956 of the Companies Act 2013, or
- A statutory body established via Act of the legislature
- Incubator should serve two years of service life on the date of application.
- Incubator must have a sitting arrangement for at least 25 individuals.
- Incubator should have at least five startups actively serving incubation phase on the date of application,
- Incubator must have a proper workforce managed by a full-time Chief Executive Officer who has experience in entrepreneurship and business development. The team should be actively working on testing & validating the idea for the startups.
- Incubators should not be providing seed funds to incubates via a third-party private entity.
- Incubator must have the back up of Central/State Government(s)
Read our article:Process of Startup India Registration: A Step by Step Guide
What are the Committees are Brought to Regulate the Startup India Seed Fund Scheme?
Committees that are brought to Regulate the Startup India Seed Fund Scheme are given bellow:-
Role of the Experts Advisory Committee (EAC)
An Experts Advisory Committee (EAC) will be set up by DPIIT, which will be accountable for the overall functioning & tracking of the Startup India Seed Fund Scheme. The EAC will analyze and chooseincubators for seed fund’s allotment, tracking progress, and take required steps to ensure efficient utilization of funds to fulfill the scheme’s objectives. The following members will be serving the Experts Advisory Committee (EAC)
- Chairman, an individual of eminence
- Financial Advisor, DPIIT, or his representative
- Additional Secretary/ Joint Secretary/ Director/ Deputy Secretary, DPIIT (Convener)
- Representative of Department of Biotechnology (DBT)
- Representative of Department of Science & Technology (DST)
- Representative of Ministry of Electronics and Information Technology (MeiTY)
- Representative of Indian Council of Agricultural Research (ICAR)
- Representative of NITI Aayog
Establishment of Incubator Seed Management Committee (ISMC)
Every incubator that opts for Startup India Seed Fund Scheme will have set up a committee known as Incubator Seed Management Committee (ISMC), which will be served by an expert who can analyze and choose startups for seed support. The ISMC should be comprised of the following members:-
- Nominee of Incubator (Chairman)
- A representative from State Government’s Startup Nodal Team
- Representative of a Venture Capital Fund or Angel Network
- A domain expert from Industry
- A domain expert from academia
- Two successful Entrepreneurs
- Any other relevant Stakeholder
EAC shall approve the final composition & members of ISMC. It will be an essential parameter in the incubator’s selection.
Disbursement of Seed Funds under Startup India Seed Fund Scheme
ISMC-selected incubators shall carry out funding distribution activities in the following manner:-
- Up to Rs 20 lakhs of investment will be granted to validate proof of concept, or product trials, or prototype development.
- Up to Rs 50 lakhs of investment will be allocated for commercialization, market-entry, or scaling up via convertible debentures or debt-linked instruments.
Startups are prohibited from using such investment for the purpose other than mentioned under the scheme. Startup India Seed Fund Scheme seems to be a groundbreaking initiative for startups across this country. With this scheme in place, startups do not have to drill down different financing options to bolster their idea.
The scheme will empower startups to capitalize on their business idea and achieve their goals. Through this scheme, Government envisages promoting innovation that benefits society or individuals in one way or another. The distribution of funds that will take place under this scheme seems systematic and free from any discrepancies.
Read our article:Benefits of Startup India Registration in India