What is Startup India Seed Fund Scheme: All You Need To Know

The main purpose of the Startup India Seed Fund Scheme is to provide financial support to startups during pivotal stages of their development, including proof of concept, prototype creation, product testing, market entry, and commercialization.

In this article, we will discuss the key objectives of the Startup India Seed Fund Scheme, its importance in today’s scenario, as well as its eligibility criteria, and other details.

Startup India Seed Fund Scheme Launch Date

▪ On January 16th, 2016, the Government of India introduced the Startup India Seed Fund Scheme, aimed at fostering a strong startup ecosystem and providing entrepreneurs with opportunities to grow their enterprises.

▪ The scheme was announced by the Prime Minister of India, as part of the government’s effort to support and promote entrepreneurship in the country.

▪ On February 5, 2021, the Government of India made an official announcement regarding the approval of the Startup India Seed Fund Scheme. It was approved for four years and came into effect on April 1, 2021.

What is Startup India Seed Fund Scheme?

▪ Startup India Seed Fund Scheme is a fundraising scheme that provides financial assistance to startups for proof of concept, prototype development, product trials, market entry, and commercialization.

▪ Eligible startups can apply for the scheme on the Startup India portal. The Seed Fund will be disbursed to selected startups through eligible incubators across India.

What is Seed Funding?

▪ Seed funding, also known as seed-stage funding, refers to the initial investment made in a startup to help it get off the ground.

▪ This type of funding is usually provided in the early stages of a startup’s development when it is still in the concept or prototype stage.

▪ Seed funding is typically provided by angel investors, venture capitalists, or other types of investors, who take an equity stake in the startup in exchange for their investment.

▪ The amount of seed funding can vary widely, depending on the needs of the startup and the investors involved.

▪ If founders use their savings to start a business rather than relying on external funding from investors or loans, then this is called bootstrapping.

What is Bootstrapping? Know More 

▪ Bootstrapping is a term used to describe the practice of starting a business using its founders' personal savings without relying on external funding from investors or loans. 
▪ Bootstrapping is a common strategy for startups in their early stages, where they often have limited resources and need to be resourceful with their funding. 
▪ With bootstrapping, founders can maintain greater control over the direction of the business, as they do not have to answer to external investors or creditors.
▪ This method can involve founders investing their own money in the business, using personal credit cards, or using personal assets to generate the capital needed to get the business off the ground. 
▪ While bootstrapping can be challenging, it can also be a way to maintain a startup's integrity and build a strong foundation for future growth.

About the SISF Scheme

▪ The Startup India Seed Fund Scheme has been sanctioned for a four-year period, starting from 2021-22, with a corpus of Rs. 945 Crore to be distributed over the next four years to eligible startups through eligible incubators across India.

▪ This scheme aims to provide financial aid to startups at the very early stage of their projects, with anticipated assistance of over 3600 startups in the country.

▪ It is aligned with the Atmanirbhar Bharat Campaign launched in May 2020.

Startup India Seed Fund Scheme Amount

▪ Seed funding to eligible startups by the incubator will be provided in two stages:
1. Up to Rs. 20 Lakhs as a grant for validation of Proof of Concept, or prototype development, or product trials.
2. And up to Rs. 50 Lakhs of investment for market entry, commercialization, or scaling up through convertible debentures or debt or debt-linked instruments.

What is the need for Startup Seed Funding Scheme in India?

▪ The Indian startup ecosystem faces a significant shortage of funding at the seed and ‘proof of concept development stages, which can make or break a startup with an excellent business idea.

▪ Without this capital in the early stages, many innovative ideas fail to take off. However, if seed funding is made available to promising startups, it can have a multiplier effect in validating the business ideas of many other startups, thereby creating more employment opportunities in the country.

▪ To strengthen support to states and Union Territories in developing their startup ecosystems, India has established a State Startup Ranking Framework.

Startup India Seed Fund Scheme Eligibility

▪ The eligibility criteria for startups to apply under the Startup India Seed Fund Scheme are as follows:

▪ The startup must be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT).

▪ The startup must have been incorporated within the last two years at the time of application.

▪ Startups that create 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. will be given preference.

▪ The startup must not have received more than Rs 10 lakh of monetary support from any other Central or State Government scheme.

▪ Indian promoters must hold at least 51% of the startup’s shareholding at the time of application to the incubator for the scheme.

What is the Experts Advisory Committee (EAC) under SISFS?

▪ The Department for Promotion of Industry and Internal Trade (DPIIT) will establish an Expert Advisory Committee (EAC) to oversee the execution and monitoring of the Startup India Seed Fund Scheme.

▪ The EAC will be responsible for evaluating and selecting incubators for the allocation of Seed Funds, monitoring progress, and taking all necessary measures to ensure efficient utilization of funds.

▪ Members from different departments shall be appointed in EAC, which comprises:

• A Chairman
• Financial Advisor, DPIIT, or his representative
• Additional Secretary/ Joint Secretary/ Director/ Deputy Secretary, DPIIT

▪ One Representative each from:

• Department of Biotechnology (DBT)
• Department of Science & Technology (DST)
• Ministry of Electronics and Information Technology (MeiTY)
• Indian Council of Agricultural Research (ICAR)
• NITI Aayog

▪ At least three expert members nominated by the Secretary, DPIIT from the startup ecosystem, investors, experts in the domain of R&D, technology development and commercialization, entrepreneurship, and other relevant domains

Recent Fund Allocation for Startup India Seed Fund Scheme

▪ Startup India Seed Fund Scheme (SISFS), a flagship scheme under the Startup India initiative has been implemented from 1st April 2021.

▪ Under this scheme, Rs. 477.25 crores has been sanctioned for 133 incubators of which Rs. 211.63 crores disbursed till 31st December 2022.

▪ Flagship schemes under the Startup India initiative such as Fund of Funds for Startups (FFS), Startup India Seed Fund Scheme (SISFS), and Credit Guarantee Scheme for Startups (CGSS) provide support to startups at various stages of their business cycle.

▪ After that, startups are able to raise investment from angel investors or venture capitalists or take loans from commercial banks or financial institutions.

Significance

▪ The Startup India Seed Fund Scheme is expected to support approximately 3,600 firms and promote the growth of the startup ecosystem, particularly in tier-2 and tier-3 cities, through 300 incubators.

▪ The fund will offer seed finance to spur creativity and promote innovative ideas, facilitate implementation, and usher in a new era of entrepreneurship. The scheme is designed to strengthen the startup ecosystem, especially in non-metro areas that often face a shortage of funding.

▪ Additionally, incubators will be able to apply for funding through a website established by the Department for Promotion of Industry and Internal Trade (DPIIT).

To Know more about the scheme or Apply in this Scheme visit the official Website, Click Here 

Frequently Asked Questions (FAQs)

Other Central Government Schemes