The Startup India Seed Fund Scheme (SISFS) is a government initiative with a substantial fund of INR 945 Crore, aimed at nurturing innovation and entrepreneurship across India. Recognizing the challenges startups face in securing early-stage funding, the scheme provides financial assistance to entrepreneurs for critical development stages such as proof of concept, prototype development, product trials, market-entry, and commercialization. The SISFS is designed to bridge the gap between the ideation phase of startups and the point where they can attract further investment or loans from financial institutions.
The scheme was announced by the Hon’ble Prime Minister during the Prarambh: Startup India International Summit on January 16, 2021, and subsequently notified on January 21, 2021. It is set to support an estimated 3,600 entrepreneurs through 300 incubators over four years. The seed fund will be disbursed through eligible incubators across India, targeting startups that have not yet reached the stage where they can secure angel investment or venture capital, which typically require a proven proof of concept.
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.
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.
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.
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 (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.
Governance and Execution by the Experts Advisory Committee (EAC)
An Experts Advisory Committee (EAC) has been established by the Department for Promotion of Industry and Internal Trade (DPIIT) to oversee the scheme’s execution and monitoring. The EAC is responsible for evaluating and selecting incubators for the allocation of seed funds, ensuring the progress of funded startups, and facilitating the efficient use of funds to achieve the objectives of the SISFS.
Financial Assistance and Seed Support Structure
Eligible startups can receive seed support in the form of grants and debt/convertible debentures, with each startup eligible to receive this support once per the scheme’s guidelines. The funding is intended to be used strictly for business development and not for infrastructure creation.
The SISFS is a government initiative that provides financial assistance to startups for proof of concept, prototype development, product trials, market-entry, and commercialization. It aims to support startups with innovative ideas that require early-stage funding to reach a level where they can attract further investment.
The scheme was announced by the Hon’ble Prime Minister of India during the Prarambh: Startup India International Summit on January 16, 2021.
The EAC, constituted by the Department for Promotion of Industry and Internal Trade (DPIIT), is responsible for the overall execution and monitoring of the SISFS. It evaluates and selects incubators for seed fund allocation, monitors the progress of funded startups, and ensures the efficient utilization of funds.
Startups must be recognized by DPIIT, incorporated within the last two years, have a business idea with market fit and scalability, use technology in their core product or service, and have not received more than Rs 10 lakh from other government schemes. They should also have at least 51% Indian promoter shareholding.
Yes, as long as the startup has not received more than Rs 10 lakh of monetary support under any other Central or State Government scheme, excluding prize money from competitions and challenges, subsidized working space, founder monthly allowance, access to labs, or prototyping facilities.
The SISFS provides financial assistance in the form of grants for proof of concept and prototype development and as convertible debentures or debt for market entry and commercialization.
Startups can apply for the SISFS by getting DPIIT recognition and then applying through the eligible incubators associated with the scheme. More details and the application process can be found on the official Startup India website.
The SISFS is significant as it addresses the capital inadequacy faced by startups at the seed and ‘Proof of Concept’ development stage