What is Startup India? The Startup India initiative of the Government of India envisages building a robust Start-up ecosystem in the country for nurturing innovation and providing opportunities to budding entrepreneurs. An Action Plan with 19 action points for the Startup India initiative was unveiled by the Hon’ble Prime Minister on January 16, 2016. This Action Plan laid down a roadmap for the creation of a conducive ecosystem for Startups in India. Subsequently, many activities have been undertaken to encourage Startups. Startup India Seed Fund Scheme (SISFS) is one such scheme provides financial assistance to early-stage startups.
What is Startup India Seed Fund Scheme? 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 SISFS 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.
An Experts Advisory Committee An Experts Advisory Committee (EAC) has been constituted by Department for Promotion of Industry and Internal Trade (DPIIT) , which will be responsible for the overall execution and monitoring of the Startup India Seed Fund Scheme. The EAC will evaluate and select incubators for allotment of Seed Funds, monitor progress, and take all necessary measures for efficient utilization of funds towards fulfilment of objectives of Startup India Seed Fund Scheme.
MINISTRY OF COMMERCE AND INDUSTRY (Department for Promotion of Industry and Internal Trade) through notification dated 21st January, 2021 has notified that the e Central Government has approved the ‘Startup India Seed Fund Scheme ("SISFS")’ to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization. The SISFS will provide financial assistance to start-ups and for that purpose, it has set aside a corpus of INR 945 crore that will be disbursed through selected incubators across India in 2021-2025.
The scheme will support startups across all sectors. A central common application will be present on Startup India portal for startups and incubators on an ongoing basis.
The Need For Startup India Seed Fund Scheme
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.
Objective Of The Scheme
Startup India Seed Fund Scheme (SISFS) aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization. This would enable these startups to graduate to a level where they will be able to raise investments from angel investors or venture capitalists or seek loans from commercial banks or financial institutions.
Eligibility criteria for startups under SISFS:
1. The startup must be recognized by DPIIT and shall not have been incorporated more than 2 years ago.
2. Startup must have a business idea to develop a product or a service with market fit, viable commercialization, and scope of scaling
3. The startup shall use technology in its core product or service, or business model, or distribution model, or methodology to solve the problem being targeted.
4. Preference would be given to the 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.
5. Startup shall have not received more than INR 10 lakhs monetary support under any other Central or State Government scheme. Note: 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.
6. Shareholding by Indian promoters in the startup should be at least 51% at the time of application to incubator for the scheme, as per Companies Act, 2013 and SEBI (ICDR) Regulations, 2018
7. No startup will receive seed support more than once.
Disbursement of Seed Fund to Startups by Incubators: Seed Fund to an eligible startup by the incubator shall be disbursed as follows:
1. Up to Rs. 20 Lakhs as grant for validation of Proof of Concept, or prototype development, or product trials. The grant shall be disbursed in milestone-based installments. These milestones can be related to development of prototype, product testing, building a product ready for market launch, etc.
2. Up to Rs. 50 Lakhs of investment for market entry, commercialization, or scaling up through convertible debentures or debt or debt-linked instruments
3. Seed fund shall strictly not be used by startups for creation of any facilities and shall be utilized for the purpose it has been granted for
Selection of startups will be an open, transparent and fair process and will be on the following basis:
1. An online call for applications shall be hosted on an ongoing basis on the Startup India portal.
2. Applicants can apply for seed fund to any three incubators selected as disbursing partners for this scheme in order of their preference.
3. All applications received will be shared online with respective incubators for further evaluation.
4. The applicant may be asked to submit details on team profile, problem statement, product/service overview, business model, customer profile, market size, quantum of funds needed, projected utilization plan for funds, etc.
5. The incubators shall shortlist applicants as per eligibility criteria given in the guidelines.
6. Eligible applications will be evaluated by Incubator Seed Management Committee (ISMC), that would consist of experts and the constitution of the same has been listed in the notification, using the following criteria:
a. What is the need of the idea?
c. Potential impact
f. Fund utilization plan
g. Additional Parameters.
7. ISMC shall evaluate applicants based on their submissions and presentations and select startups for Seed Fund within 45 days of receipt of application.
8. All incubators shall provide information about progress of evaluation of startups real-time to Startup India portal.
9. Selected startups shall receive seed funding under the respective incubator that selects them as beneficiaries as per their preference shared during application (for example, if incubators at Preference 1 and Preference 2 both select a startup, the funding shall be given by Preference 1 incubator. If Preference 1 incubator rejects and Preference 2 incubator selects, the funding shall be given by incubator at Preference 2, and so on.)
10. All applicants will be able to track the progress of their application on the Startup India portal on a real-time basis, will be notified the result through email and may apply afresh after rejection.
Eligibility criteria for Incubators:
1. Incubator must be a legal entity, i.e., a) A society registered under the Societies Registration Act 1860, or b) A Trust registered under the Indian Trusts Act 1882, or c) A Private Limited company registered under the Companies Act 1956 or the Companies Act 2013, or d) A statutory body created through an Act of legislature.
2. Incubator should be operational for at least two years on the date of application to the scheme.
3. Incubator must have facilities to seat at least 25 individuals.
4. Incubator must have at least 5 startups undergoing incubation physically on the date of application.
5. Incubator must have a full-time Chief Executive Officer, experienced 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.
6. Incubator should not be disbursing seed fund to incubatees using funding from any third-party private entity.
7. Incubator must have been assisted by Central/State Government(s).
8. In case (7) above is inapplicable:
a. Incubator must be operational for at least three years.
b. Must have at least 10 separate startups undergoing incubation in the incubator physically on the date of application.
c. Must present audited annual reports for the last 2 years.
9. Apart from the conditions above, any additional criteria might be decided by the Experts Advisory Committee ("EAC").
NOTE: An EAC will be constituted by DPIIT, which will be responsible for the overall execution and monitoring of the Startup India Seed Fund Scheme. The EAC will evaluate and select incubators for allotment of Seed Funds, monitor progress, and take all necessary measures for efficient utilization of funds towards fulfilment of objectives of Startup India Seed Fund Scheme. The members that would comprise the EAC have been mentioned in the notification.
The selected incubators will be provided a grant upto INR 5 crore in milestone-based three or more installments. The exact quantum of grant would be decided by the EAC based on its evaluation.
Selection of Incubators:
Online Applications will be invited from incubators across India to participate in the scheme on https://www.startupindia.gov.in or any other platform specifically designated for the purpose.
The selection criteria/parameters are as follows:
1. They shall fulfil eligibility criteria mentioned above.
2. Quality of the team of Incubator
3. Available infrastructure, testing labs etc.
4. Composition of ISMC.
5. Incubation support provided by incubator in last three years:
a. No. of startups incubated
b. No. of startups graduated, i.e. progressed from one stage of business development cycle to the next
c. No. of startups that raised follow on investments
d. No. of startups that crossed a revenue of Rs 1 Cr in last 1 year v. 2-year survival rate of startups from the date of joining incubator
6. Funding support extended to incubatees in last three years:
a. Investment agreements signed between incubator and startups
b. No. of startups invested in
c. Total corpus allocated to incubatees
d. Total investments raised by incubatees from external sources
7. Mentoring provided to incubatees in last three years:
a. No. of mentors hired
b. Average mentoring hours allocated per startup per month
c. No. of IP (patents, copyrights, designs, and trademarks) registered by incubatees
8. Other support extended to incubatees in last three years:
a. Industry/Corporate connects
b. Events held for stakeholder engagements
c. Participation in other events
9. Number of startups that the incubator intends to support
10. Quantum of funds applied for, along with fund deployment plan with timelines
11. Any other relevant parameters that decided by the EAC
NOTE: The call for applications for incubations will be open online throughout the year.
Features Of Startup India Seed Fund Scheme
Year-round ‘Call for Applications’ for Incubators and Startups
No mandatory physical incubation
PAN-India startup programme
Startups can apply to 3 incubators simultaneously
A video explaining the same can be accessed here.
Official information and online links can be accessed here.
By Siddharth Dalmia, the Startup Sherpa