Startup India Seed Fund Scheme

1 Sep 2021

Curtain Hug

Abstract
In today’s competitive corporate world, it has become extremely important to financially
support and stabilize start-up businesses, through funding and fundraising. Recognizing this,
the Government of India announced the implementation the Startup India Seed Fund Scheme
(SISFS) to aid more than 3600 initiatives with the help of 300+ business incubators. The early
financial support will act as the ‘seed’ which will help to grow the premature business.
Generally, funding from investors and venture capitalists becomes available to new businesses
only after receiving the proof of concept. Similarly, bank loans are available usually available
to asset-owners. [1]
India’s corporate dilemma
In the seed and ‘Proof of Concept' development stages, the Indian startup ecosystem suffers
from a lack of finance. For businesses with good company concepts, the funding necessary at
this point might be a ‘make or break’ issue. Many new business concepts fail to take off because
they lack the necessary funding for proof of concept, prototype development, product trials,
market entry, and commercialization at an early stage. Seed funding provided to such
promising cases might have a multiplier effect, resulting in the validation of many company
ideas and the creation of jobs. [2]
Objective of the SISFS Scheme
The scheme aims to provide capital support to new businesses to ensure they are able to
overcome various hurdles such as proof of concept (evidence that shows an idea, design,
proposal is feasible; pilot project), prototype development, product trial and market entry.
Through the SISFS programme, the government aims to establish a structure that provides
monetary benefits to start-ups.
[3]
Start-up, seed-funding
The Department of Promotion of Industry and Internal Trade (DPIIT) had recently released a
notification that provided an inclusive definition of a start-up business. According to the report,
an entity is considered a start-up:
1. Up to 10 years after its incorporation date.
2. If it’s (entity’s) turnover for any of the financial years since its incorporation has not
exceeded 100 crores.
The concept of seed funding involves early capital investment, to supplement growth. [4] [5]
Features of the SISFS scheme
With effect from April 2021, the scheme has been approved for a duration for four years.
1. A total of 945 crores will be disbursed to eligible start-ups through registered
incubators.
2. After the funds are incubated, the start-up businesses will be provided physical
infrastructure, testing-support, directions to ensure legal compliance, guidance and
mentoring to ensure prototype-commercialisation, etc. [6]

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Benefits of the SISFS Scheme
1. Secure seed funding.
2. Support transformative ideas and inspire innovation.
3. Facilitate implementation to support a start-up revolution.
4. Foster a robust start-up ecosystem.
5. Create new employment opportunities.
6. Through an online approach, start-ups should be able to self-certify their compliance
with six labour regulations and three environmental laws.
7. For the next five years, no inspection will be carried out in accordance with labour rules.
It can only be inspected if there is a documented complaint that is credible, verifiable,
and has been approved by at least one level above the inspecting officer.
8. White category start-ups will be able to self-certify their compliance with
environmental standards.

Eligibility Criteria of Start-ups
1. A start-up, recognized by DPIIT, incorporated not more than 2 years ago at the time of
application.
2. The startup must have a business plan for a product or service that is market fit, commercially
viable, and scalable.
3. To solve the problem being targeted, the startup should use technology in its primary product
or service, business model, distribution model, or approach.
4. Start-ups developing innovative solutions in areas 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,
and other areas would be given priority.
5. Under any other Central or State Government scheme, a start-up should not have received
more than Rs 10 lakh in financial assistance. Prize money from competitions and grand
challenges, subsidised working space, a monthly allowance for the entrepreneur, access to
labs, and access to a prototyping facility are not included.
6. According to the Companies Act of 2013 and the SEBI (ICDR) Regulations of 2018, Indian
promoters must own at least 51 percent of the company at the time of application to the
incubator for the programme.
7. According to the scheme's requirements, a business applicant can receive seed funding in the
form of a grant and debt/convertible debentures once.

How will the start-ups be chosen?
➢ Each incubator that applies for the Startup India Seed Fund Scheme will form an Incubator
Seed Management Committee (ISMC), which will include of specialists who will analyse and
choose start-ups for seed funding.
➢ The start-ups shall be selected through a transparent and fair process, comprising:

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a) An online call for applications shall be hosted on an ongoing basis on the Startup India
portal.
b) In order of priority, applicants can apply for seed funding to any of the three incubators
chosen as disbursing partners for this scheme.
c) All submitted proposals will be shared online with the appropriate incubators for
further review.
d) The applicant may be asked to provide information about their team, problem
statement, product/service summary, business model, client profile, market size,
amount of funds required, expected use of funds, and so on.
e) Evaluation of eligible applications will be based on the following factors:
i. Need for the idea – Current market, does it solve real-world problems?
ii. Feasibility – Reasonability of the technical claims and the methodology used.
iii. Potential Impact – National Importance.
iv. Novelty – Unique Selling Proposition (USP) of the technology.
v. Team – Strength of the team, expertise.
vi. Fund Utilization Plan – Roadmap of monetary utilization.
vii. Additional Parameters – Further criterion that is considered appropriate for
assessment by the incubator.
viii. Presentation – Overall evaluation. [7]

Eligibility Criteria of Incubators

1. An Incubator must be a legal entity:
a) A society registered under the Societies Registration Act, 1860.
b) A trust registered under the Indian Trusts Act, 1882.
c) A private limited company registered under the Companies Act, 1956
d) A statutory body created through an Act of the legislature.
2. On the date of application to the scheme, the incubator must have been operating for at least two
years.
3. The incubators must have facilities to seat at least 25 individuals.
4. On the date of application, the incubator must have at least 5 start-ups in physical incubation.
5. The incubator must have a full-time CEO with experience in company development and
entrepreneurship, as well as a skilled team to coach start-ups in areas such as idea testing and
validation, as well as finance, legal, and human resources.
6. The incubator should not give seed money to firms that have received funding from a third-party
private entity.
7. The central/state government must have aided the incubator.
8. In case the incubator has not been assisted by the Central or State government:
a) The incubator must be operational for at least 3 years.
b) The incubator must have at least ten separate start-ups undergoing incubation in the incubator
physically on the day of the application.
c) The incubator must present audited annual reports for the last two years.

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Advisory Committee
The Experts Advisory Committee (EAC) comprises of the DPIIT, which will be responsible
for the smooth execution and functioning of the Startup India Seed Fund Scheme. It includes
the following members:

Name Position/Occupation

Shri H.K Mittal Chairman
Shri Shashank Priya Additional Secretary & Financial Adviser, DPIIT
Shri Anil Agrawal Additional Secretary, DPIIT (Convenor)
Dr Alka Sharma Advisor DBT
Dr. Anita Gupta Head (NEB), DST
Shri Jeet Vijayvargiya CEO, MeitY Startup Hub
Dr K Srinivas Pr. Scientist (RSM ICAR-NAARM) & CEO,

NAARM TBI a-IDEA
Shri Saji Gopinath Professor, IIM Kozhikode
Smt. Renuka Ramnath Indian Private Equity and Venture Capital

Association

Smt. Padmaja Ruparel Co-founder IAN & Founding Partner IAN Fund
Smt. Anjali Bansal Founder, Avaana Capital
Smt. Shruthi Kannan Head, Cisco Launchpad
Dr Apoorva Ranjan Sharma Co-founder Venture Catalysts & 9 Unicorns

A success story
The Government of India’s flagship programme has been a major buffer for start-up businesses.
According to DPIIT, adding the last 10,000 companies took only 180 days, compared to 808
days for the first 10,000 at the start of the campaign. “In the initial year of the initiative, 743
start-ups were acknowledged, which has now risen tremendously to over 16,000 start-ups being
recognised in the year 2020-2021," it stated. Entrepreneurs can benefit from a variety of laws,
regulations, fiscal, and infrastructural support under the Startup India strategy, which has
resulted in a spike in the startup ecosystem's growth. “Recognized companies have made a
major contribution to employment creation, with 48,093 start-ups reporting 5,49,842 positions
and an average of 11 employees per startup. According to the DPIIT, "recognised start-ups
created almost 1.7 lakh jobs in the 2020-2021 timeframe alone." Food processing, product
development, application development, IT consulting, and business support services are the
industries with the most registered start-ups. “Women entrepreneurs make up 45 percent of
startup leadership teams, a trend that will encourage more women to transform their ideas into
businesses "start-ups," according to the statement. “DPIIT's Startup India programme has been
instrumental in bolstering the essential pillars defined for our startup ecosystem. The Fund of
Funds Scheme, which has an overlay of 10,000 crore, and the recently created Startup India
Seed Fund Scheme (SISFS), which has an outlay of 945 crore, have increased funding
prospects for entrepreneurs " as mentioned by the DPIIT. [8]

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Conclusion
The SISFS is set up to work like a well-oiled machine, with each component (the EAC, the
incubator, and the Startups) playing a critical role in the overall strategy. The effectiveness of
the sector’s strategy in achieving its goal of supporting the startup sector will be entirely
dependent on how successfully the various organs work together. Even though there exists
ambiguity with regards to several aspects of the scheme’s implementation, the initiative should
contemporarily be commended and welcomed. The success of the SISFS will entirely depend
on the administration and operation of the EAC, the incubator, and the start-ups, which is yet
to witnessed fully. [9]