Overview:
At the early stages of growth of startup, the most essential element for entrepreneurs is easy access of capital. But, startups can get funding from angel investors and venture capital firms only after they present proof of concept. Besides, banks also provide loans to asset–backed applications only. Therefore, it becomes important to provide seed-funding to startups so that they can conduct proof of concept trials. In order to resolve this and to build a robust startup ecosystem, the Government of India has launched Startup India Seed Fund Scheme 2021 under which it provides financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization. This seed fund will be allocated to eligible startups through eligible incubators across India. Through this initiative, the startups will reach to a level and will be able to raise funds from angel investors, venture capitalists, banks as well as financial institutions.
DPIIT has created Startup India Seed Fund Scheme with an outlay of Rs. 945 Crores to 300 incubators through which an estimated 3600 entrepreneurs will get support in the next 4 years. The funds provided to the startups under this scheme are up to Rs. 50 Lakhs.
Implementation of Startup India Seed Fund Scheme:
The DIPP has formed an Experts Advisory Committee (EAC) to implement, execute and monitor SISF scheme. EAC assesses and selects incubators for allotment of seed funds, monitors progress and takes all essential measures for efficient utilization of funds towards fulfillment of objectives of this scheme. EAC consists of following members:
- Chairman
- Representative of department of biotechnology
- Additional secretary/joint secretary/director/deputy secretary, DPIIT
- Representative of Department of science and technology
- Financial advisor, DPIIT
- Representative of ministry of electronics and information technology
- Representatives of Indian council of agricultural research
- At least three members nominated by secretary
- Representative of NITI aayog
Under this, EAC will disburse the grant up to Rs. 5 Crores to incubators in 3 or more installments. Here, the incubators can’t use this grant for any other mater except disbursing it to eligible startups. Incubators will receive 5% of seed fund grant as a management fees. In addition to this, if the incubator has not used 50% of the grant within 2 years, then no further amount will be provided to it and the incubator is liable to return the unutilized fund with interest. Also, the selection process of startups should be maintained transparent by incubators.
The incubators are accountable to present the reports as asked by the committee. The startups provide incubators information related to their progress of market launch, prototype development, proof of concept, field trial, product development, generated employment and traction received through online dashboard. The incubators have to present this received information across EAC quarterly. Besides, each financial year, every incubator is required to report the sanctioned funds, received funds in terms of return and disbursed funds as well as a detailed report on utilization of funds and audited expenditure. If any return is received from startups then it can be used for further funding and if there is not any further funding, then the money is returned to DIPP.
Eligibility criteria for Startups and Incubators:
For Startups:
- 1. The startup should be recognized by DPIIT.
- 2. At the time of application, the startup should be incorporated not more than two years ago.
- 3. The startup must have business idea to develop a product or service which will be fit for the market, has the scope of scaling, and viable commercialization.
- 4. At the time of application to the incubator for the scheme, the shareholding by the Indian promoter in the startup should be at least 51% or more according to the company’s act 2013 and SEBI regulation 2018.
- 5. The startup should have not received any support of rupees 10 lakh or more under any central or state government scheme.
- 6. Those startups who are creating an innovative solution in water management, waste management, education, agriculture, biotechnology, healthcare, energy, defense, space, railways, oil & gas, textiles, financial inclusion, food processing, etc. will be given preference.
- 7. The startup should be using technology in its core product or service in order to solve the problem which is targeted.
For Incubators:
- 1. The incubator must be a legal entity
- 2. An incubator must be assisted by central or state government.
- 3. The incubator must be operational for 2 years at the time of application.
- 4. The incubator must have the facility to seat at least 25 individuals.
- 5. On the date of application, the incubator should have at least 5 startups that should be undergoing incubation physically.
- 6. A full-time chief executive officer who must be experienced in business development and entrepreneurship should be presented in the incubator which should be supported by a capable team.
- 7. If the incubator is providing funding from any third private entity to the incubatees then that incubator is ineligible.
- 8. If the incubator is not assisted by central or State Government then the incubator must be operational for at least 10 years, must have presented audited annual reports for at least 2 years and at the time of application must have at least 10 separate startups which are undergoing incubation physically.
