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All about START-UP INDIA SEED FUND SCHEME!

narendra modi

“I see start-ups, technology and innovation as exciting and effective instruments for India’s transformation.”- Narendra Modi (Prime Minister of India)

INTRODUCTION

On February 5, 2021, The Government of India announced the approval of SISFS. The scheme was implemented with effect from April 1, 2021, and it has been approved for 4 years.

The Start-up India Seed Fund Scheme (SISFS) is one of the many such schemes under the Start-up India Initiative. It provides the necessary financial assistance to start-ups that are at a very early stage. Easy availability of capital is essential for entrepreneurs at the early stages of the growth of an enterprise.

This scheme aims to overcome this problem of lack of capital faced by start-ups by allocating Rs.925 crore to provide financial assistance to these start-ups.

THE START-UP INDIA INITIATIVE

Start-up India is its kind initiative by the Government of India launched on 16th January 2021, for the creation and development of a strong eco-system that will allow for and help entrepreneurs in proceeding with innovations and start-ups much easier in the country.

The government envisages that such an ecosystem and boom of start-ups and innovations will help the country in achieving sustainable economic growth and in generating large scale employment.

In attempts to complete these objectives, the Government of India came up with an action plan that covered all aspects of the start-up ecosystem and expects it to accelerate the growth of this landscape.

This initiative plans to achieve these goals by simplifying the work for new entrants, providing them with various means of financial support, income tax benefits, government tenders, and huge network opportunities.

WHAT IS SEED FUNDING?

The term Seed Funding refers to the earliest stage of raising capital for a new start-up. New start-ups find it extremely difficult to convince angel investors to invest in their business if they are not able to prove the practicability and chances of success of their innovative idea.

Approaching banks for a loan is also not easy if they don’t have the condition to provide the banks with security against the loan. Seed Funding helps start-ups that have an innovative idea but don’t have the financial support to conduct proof of concept trials, or prototype development, or product trials.

WHAT IS AN INCUBATOR?

Business incubators refer to institutions that engage with start-ups and support the entrepreneurs in developing their business in the very early stages of its creation.

They provide these start-ups with their financial and other requirements in an attempt to speed up the growth of these upcoming start-ups. An Incubator may have multiple start-ups under its wings and work with them simultaneously to speed up its development process. 

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The provision of technical facilities and guidance, initial growth money, network and linkages, co-working spaces, lab facilities, mentoring and advisory help are all examples of incubation support.

Angel investors, government organisations, economic-development coalitions, venture capitalists, and other investors frequently turn to them for funding.

SISFS (START-UP INDIA SEED FUND SCHEME)

The Hon’ble Prime Minister, Narendra Modi announced the SISFS scheme on 16th January 2021.

The Start-up India Seed Fund Scheme (SISFS) was created by the Department for Promotion of Industry and Internal Trade (DPIIT) with an estimated expense of Rs.945 crore to provide financial assistance to the start-ups which are in stages of their creation.

It will help provide these start-ups with the funding required to carry out prototype development, proof of concept, market entry, product trials, and commercialisation. 

In the seed and ‘Proof of Concept’ development stages, the Indian start-up ecosystem faces a problem capital shortage which prevents them from pursuing their innovative ideas and seeing them through.

The lack of funding at this stage is often the reason for many start-ups to fall off despite having innovative business ideas.

The reason why this financial aid is being held as a great initiative to promote innovations and start-ups is that a lot of times many start-ups that come up with innovative ideas may not be able to get investors on board because they aren’t able to present those ideas to be practical due to lack of resources and money.

This funding will help them cross this hurdle presented in their early stages of development.

EXPERTS ADVISORY COMMITTEE (EAC)

The Department for Promotion of Industry and Internal Trade (DPIIT) has constituted an Expert Advisory Committee which holds the responsibility for the overall execution and monitoring of the Start-up India Seed Fund Scheme.

This committee is responsible for evaluating and selecting potential incubators, allocating funds, monitoring the progress of selected incubators and also taking required measures to ensure that the funds are being utilised efficiently.

The committee comprises 13 members and is currently chaired by H.K. Mittal from the department of science and technology. 

The EAC examines the selected incubators for grant support and awards them a grant of up to Rs.5 crore in three or more instalments based on milestones. Based on the evaluation of selected incubators, the EAC decides on the specific instalments and amounts for each incubator.

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Every SISFS-accredited incubator is required to form an Incubator Seed Management Committee (ISMC), which will include professionals who will choose and assess start-ups for seed funding. The incubators can also shortlist start-up applications and present them to the ISMC based on their evaluation.

Within 45 days of receiving applications, the ISMC will review applicants based on their presentations and submissions and pick the deserving start-ups for the seed fund.

After the evaluation, the selected start-ups will receive seed funding under the respective incubator that selects them as beneficiaries according to their preferences shared in the applications.

ELIGIBILITY CRITERIA FOR SISFS

Eligibility Criteria for Start-ups Under SISFS:

  • The start-up must be recognised by the DPIIT and at the time of filing an application, it must not be incorporated for more than two years. 
  • The start-up must possess a business idea for the development of a service or product that is fit for the market, viable for commercialisation and has a potential for scaling. 
  • The start-up must make use of technology in their core service, product, distribution model, business model or methodology to solve the targeted problem. 
  • The start-ups focussed around creating innovative solutions for issues such as, waste management, social impact, water management, education, financial inclusion, food processing, agriculture, healthcare, biotechnology, mobility, energy, space, defence, oil and gas, textiles, railways, etc., will be given preference in the process of selection.
  • The start-up must not have received more than Rs.10 lakh of monetary support under any other Central or State Government scheme. If they have received such monetary support, then it would render them ineligible for his scheme. This amount does not include prize money from competitions, subsidised working space, access to labs, founder monthly allowance or access to prototyping facility. 
  • The shareholding of an Indian promoter in the start-up applying for the scheme must be at least 51% at the time of application to the incubator. 
  • The start-up can obtain seed support in the form of grants and convertible/debt debentures, in accordance with the guidelines of the scheme. 

Eligibility Criteria for Incubators Under SISFS:

  • The incubator is required to be a legal entity. A legal entity can be:
  1. Society registered under the Societies Registration Act, 1860.

2. Private Limited Company registered under the applicable provisions of the Companies Act, 2013, or Companies Act, 1956.

3. Trust registered under the Indian Trusts Act, 1882.

4. Any statutory body created under an act of the legislature.

  • The Incubators must have been operational for at least two years before the date of filing the application. 
  • The Incubators must have the facility of seating at least 25 people. 
  • The Incubators must have at least five start-ups undergoing incubation physically before filing of the application. 
  • Incubators must have a full-time Chief Executive Officer, experienced in entrepreneurship and business development who shall be supported by a competent team. The responsibility of mentoring start-ups in validating and testing, legal, finance, and human resources functions lies with the CEO and their team.
  • Funding from third party private entities cannot be used by Incubators to distribute seed funds incubates. 
  • The Central or State Governments should have assisted incubators.
  • In case the Central or State Governments have not assisted the incubators, 
  1. The incubator must have been operational for a minimum of three years. 
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2. The incubator must have at least ten different start-ups undergoing incubation physically during the time of filing for the application 

3. The incubator must provide the audited annual reports for the previous two years. 

  • Any additional criteria as may be decided by the Experts Advisory Committee (EAC).

CONCLUSION

The Start-Up India Seed Fund Scheme is an excellent initiative by the government of India to promote and help in the development of more innovative ideas and start-ups.

It will supposedly support an estimated 3,600 entrepreneurs through 300 incubators in the next 4 years. Grants of up to Rs. 5 crores would be given to the committee’s chosen suitable incubators. Start-ups will get subsidies of up to Rs. 20 lakhs from the selected incubators for validation of proof of concept, prototype development, or product testing.

Start-ups will be given up to Rs. 50 lakhs in convertible debentures or debt-linked instruments to help them enter the market commercialise their products or scale-up. It will aid in the development of a vibrant start-up environment in Tier 2 and Tier 3 regions, as smaller towns in India are frequently underfunded. 

This scheme does not only help the up-and-coming entrepreneurs of this generation but, it is also enabling the creation of a start-up ecosystem which will make the whole process of converting an innovative idea into a successful start-up much more achievable.

It will also help in generating more wealth and creating extra employment opportunities, especially in small towns. This scheme will bring forth a lot of new innovative ideas that can be practically used to tackle many of the ongoing issues in this country.

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