On February 5th, 2021, the Government of India officially launched Startup India Seed Fund Scheme, SISFS. The SISFS aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry, and commercialisation. The SISFS scheme has been approved for a four-year period. It was implemented on April 1st, 2021.

Seed Funding

Initial stage investment is known as Seed funding or seed-stage funding. Investors who seed fund a startup get an equity stake in the business in exchange for the capital they invest. When a startup is self-funded by the founders themself, it is called bootstrapping.

Need For Startup Seed Funding Scheme

The ecosystem of the Indian startups doesn’t have enough capital in the seed and ‘Proof of Concept’ stage of their development. The capital requirement for startups at this stage is essential for their survival, even when they have good business ideas.

Funding to startups from venture capital firms and angel investors becomes available only after the proof of concept has been provided. Additionally, banks provide loans only to asset-backed applicants. As a result of insufficient funding, many startups with innovative business ideas fail in their initial stages.

In such cases, seed funding can help a business conduct proof of concept trials and take off, eventually contributing to the country’s economy and generating employment.

To strengthen the support of States and UTs to build their startup ecosystems holistically, a States’ Startup Ranking Framework has been set up in India.

Key Take outs From The Startup India Seed Fund Scheme

• SISFS scheme aims to provide financial assistance to startups in the initial stage.

• The SISFS scheme has been approved for a four-year period, starting from April 2021.

• A total sum of 945 Crore Indian Rupees will be given as seed funding by eligible incubators to eligible startups over the four years period across India.

• The SISFS scheme expects to help more than 3600 startups in the country.

• This scheme is in line with the Atmanirbhar Bharat Campaign launched in May 2020

• An incubator will disburse the Seed Fund to an eligible startup as follows:

• A grant of up to 20 lakhs Indian Rupees for validation of Proof of Concept, prototype development or product trials.

• A grant of up to 50 lakhs Indian Rupees for market entry, commercialisation, or scaling up through convertible debentures or debt or debt-linked instruments.

Experts Advisory Committee

Department for Promotion of Industry and Internal Trade (DPIIT) has set up an Experts Advisory Committee (EAC). The EAC will be responsible for the overall execution and monitoring of the Startup India Seed Fund Scheme.

The EAC will be responsible for evaluating and selecting incubators for allotment of Seed Funds, monitoring progress, and taking all necessary measures for efficient utilisation of funds towards the fulfilment of objectives of the SISFS.

The EAC will comprise members from different departments for several positions, including:

• Chairman

• Financial Advisor, DPIIT or his representative

• Additional Secretary/ Joint Secretary/ Director/ Deputy Secretary, DPIIT

• One Representative each from:

• Department of Science & Technology (DST)

• Department of Biotechnology (DBT)

• Ministry of Electronics and Information Technology (MeiTY)

• NITI Aayog

• Indian Council of Agricultural Research (ICAR)

• 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 commercialisation, entrepreneurship and other relevant domains

Who Are Eligible For Startup Seed Funding Scheme

• A DPIIT recognised startup incorporated not more than two years ago at the time of application.

• The startup must have a business idea to develop a product or a service with a market fit, viable commercialisation, and scope of scaling.

• The startup should use technology in its core product or service, business model, distribution model, or methodology to solve the targeted problem.

• 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. It does not include prize money from competitions and grand challenges, subsidised working space, founder monthly allowance, access to labs, or access to a 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 the Companies Act 2013 and SEBI (ICDR) Regulations, 2018.

• A startup applicant can avail of seed support through grants and debt/convertible debentures each once per the scheme’s guidelines.