The Indian government’s Startup India initiative aims to establish a strong startup ecosystem that fosters innovation and offers opportunities to aspiring entrepreneurs. The initiative was launched on January 16, 2016, and includes an action plan comprising 19 points.
The action plan lays out a blueprint for creating a favorable environment for startups in the country. Since its inception, various initiatives have been introduced to promote startups, one of which is the Startup India Seed Fund Scheme (SISFS). This program provides financial aid to early-stage startups.
The Indian government continues to support the development of startups in the country by creating a conducive ecosystem through initiatives such as tax exemptions, relaxation of regulations, and funding assistance. These efforts are intended to boost innovation, create employment opportunities, and contribute to the growth of the economy.
What is Startup India Seed Fund Scheme?
Entrepreneurs in the early stages of enterprise growth require easy access to capital. However, angel investors and venture capital firms typically only provide funding after proof of concept has been demonstrated. Furthermore, traditional banks only offer loans to applicants with assets to back them up. Therefore, providing seed funding to startups with innovative ideas is critical to conduct proof of concept trials. This can help entrepreneurs bring their ideas to fruition and create successful businesses.
The Seed Fund will be disbursed to eligible startups through eligible incubators across India.
Objectives of SISFS
The Indian startup ecosystem faces a shortage of capital during the seed and “Proof of Concept” development phase, which can be crucial for startups with promising business ideas. Inadequate funding during this phase can make or break a startup’s chances of success.
Unfortunately, many innovative business ideas fail to take off due to a lack of critical capital required for proof of concept, prototype development, product trials, market entry, and commercialization. This is where seed funding can play a significant role in validating the business ideas of promising startups and potentially creating employment opportunities.
Investing in seed funds can have a multiplier effect, encouraging the growth and validation of multiple startups. By providing the necessary funding during the early stages of a startup’s growth, the Indian startup ecosystem can help to unlock the full potential of innovative entrepreneurs and bring their ideas to fruition.
Eligibility Criteria for Startups for Seed Fund Scheme
The Department for Promotion of Industry and Internal Trade (DPIIT) in India offers recognition to startups that meet certain criteria. Here are some of the requirements:
- The startup must be recognized by DPIIT and incorporated not more than two years ago at the time of application. To get DPIIT-recognized, startups can visit the Startup India website.
- The startup should have a business idea that can develop a product or a service with a market fit, viable commercialization, and scope of scaling.
- The startup must be using technology in its core product or service, business model, 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.
- The startup should not have received more than Rs 10 lakh of monetary support under any other Central or State Government scheme. However, 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.
Eligibility Criteria for Incubators
- The incubator must be a legal entity and can be a society registered under the Societies Registration Act 1860, a trust registered under the Indian Trusts Act 1882, a private limited company registered under the Companies Act 1956 or the Companies Act 2013, or a statutory body created through an Act of the legislature.
- The incubator should have been operational for at least two years from the date of application to the scheme.
- The incubator must have sufficient facilities to accommodate at least 25 individuals.
- The incubator must have a minimum of 5 startups undergoing incubation physically on the date of application.
- The incubator must have a full-time Chief Executive Officer with experience in business development and entrepreneurship, supported by a capable team responsible for mentoring startups in testing and validating ideas, as well as in finance, legal, and human resources functions.
- The incubator must not be disbursing seed fund to incubatees using funding from any third-party private entity.
- The incubator must have been assisted by the Central/State Government(s).
- If the incubator has not been assisted by the Central or State Government(s), it must have been operational for at least three years, have a minimum of 10 separate startups undergoing incubation physically on the date of application, and present audited annual reports for the last 2 years.
- Any additional criteria as may be decided by the Experts Advisory Committee (EAC).