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Startup India Seed Fund Scheme

Last Updated : 03 Nov, 2022
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On January 16, 2014, the Government of India introduced the Startup India Seed Fund Scheme to create chances for the growth of the businesses and create a startup-friendly ecosystem. Through the incubators, companies would receive early financial support of up to Rs. 50 lakh. A budgetary allotment of Rs. 945 crores was given for the SIFSS program. The government will give money to incubators, which will subsequently give money to companies. The SIFSS incubators will help 3600 entrepreneurs over the course of the following four years. The Startup India initiative celebrated its fifth anniversary during the “Prarambh: StartupIndia International Summit.”

Important Terms/Definitions:

  1. Department for Promotion of Industry and Internal Trade: In India, the Ministry of Commerce and Industry is responsible for the central government department known as the Department for Promotion of Industry and Internal Trade (DPIIT). It is in charge of coming up with and putting into action promotional and developmental strategies for the industrial sector’s expansion while keeping in mind national priorities and socioeconomic goals.
  2. A Business incubator: It is a company that offers a comprehensive variety of services, starting with management training and office space and concluding with venture capital investment, to assist new businesses and individual entrepreneurs in developing their businesses.
  3. Seed Funding: It is the initial official funding that a company raises.

Characteristics of Startup India Seed Fund Program:

  • In an effort to create an environment for startups, the Indian government introduced the Startup India Seed Fund Scheme 2022.
  • On January 16, 2016, this program went into effect in an effort to give entrepreneurs options to expand their businesses.
  • Our esteemed Prime Minister Mr. Narendra Modi made the announcement to establish this program.
  • Through incubators, this program would offer financial support to entrepreneurs at an early stage of development of up to Rs. 50 lakh.
  • For this program, the government has set aside a budget of Rs 945 crore.
  • The government will provide incubators money, and the incubators will be in charge of giving this money to companies. 

Need for the Startup India Seed Fund Program:

  • For entrepreneurs in the early stages of an enterprise’s growth, easy access to cash is crucial.
  • Angel investors and venture capital firms will only support startups if a proof of concept has been demonstrated. Similarly, banks only grant loans to applicants who can provide evidence of their holdings.
  • To enable firms with creative ideas to undergo proof of concept tests, early capital is crucial.

Significance of the Startup India Seed Fund:

The Startup India Seed Fund Scheme (SISFS) intends to give funding support to entrepreneurs for market entry, product testing, prototype creation, proof of concept, and commercialization. This would allow these firms to advance to a stage where they may find funding from venture capitalists or angel investors or apply for loans from commercial banks or other financial institutions.

Eligibility Criteria for Startups:

  • When applying, a startup must be recognized by DPIIT and have been incorporated no longer than two years.
  • The startup needs to have a solid business plan in place before it can create a good-fitting product or service that can be scaled up.
  • A startup should include technology into their main offering, service, business strategy, distribution plan, and approach to the problem at hand.
  • Under any other government program, a startup should not have received more than Rs. 10 lakh in financial assistance.
  • This excludes prizes from contests and grand challenges, free workspace, a founder’s monthly stipend, access to labs, and use of a prototyping facility.
  • According to the Companies Act of 2013 and the SEBI (ICDR) Regulations of 2018, the percentage of shares held by Indian promoters in the startup should be at least 51%.
  • Startups developing novel solutions in the following industries will be given preference: 
  1. social effect
  2. Waste management and Water management
  3. financial participation
  4. Agriculture and education
  5. Processing of food and biotechnology
  6. Healthcare
  7. Mobility and energy
  8. Space and defense
  9. textiles and railroads
  10. Gas and oil

Criteria for Incubators’ Eligibility:

  • The incubator has to be a legitimate business
  • A society that has been authorized by the Societies Registration Act of 1860
  • A Trust established in accordance with the Indian Trusts Act of 1882
  • A Private Limited Company that is incorporated in accordance with the Companies Act of 1956 and the Companies Act of 2013
  • A statutory body established by a legislative act
  • When applying for the program, the incubator must have been in existence for at least two years.
  • The incubator must have enough space for at least 25 people to sit down.
  • On the date of application, there must be physically 5 businesses being incubated at the incubator.
  • The incubator must have a full-time CEO with business development and entrepreneurial expertise who is backed by a competent staff capable of assisting companies in idea testing and idea validation as well as in financial, legal, and human resources tasks.
  • The incubator shouldn’t be giving firms seed money with backing from any other private organisation.
  • The Central/State Government must have provided assistance to the incubator.
  • If the state or federal government has not provided funding for the incubator:
  • At least three years must pass before the incubator is no longer in use.
  • The incubator must physically house at least 10 different startups that are undergoing incubation on the date of application.
  • To years’ worth of audited annual reports must be presented.

Goals of Startup India Seed Fund Program:

The Startup India Seed Fund’s major goal is to give entrepreneurs money for their firms so they can expand their businesses. Through this program, business owners are now required to visit banks and other financial institutions in order to obtain funding for their venture ideas. They only need to apply through this program to receive money from the government. The Startup India Seed Fund Scheme will provide the necessary funding when it is needed most. For the proper timing of product development, testing, market introduction, etc. This plan will also create a lot of jobs and support startup companies’ business plans.

Observation Of Startup India Seed Fund Program:

The startup India seed fund’s relationship with the chosen incubators will be evaluated by the expert advisory group. Under this plan, the incubators are required to submit the report in accordance with the expert advisory committee’s instructions for the purpose of objective evaluation. The expert advisory council has complete right to stop providing seed fund support if the incubator is not operating up to standards. Legal action will be taken against the incubator if it is found to have used the money for something other than what it was intended.

Implementation of the Startup India Seed Fund Program:

A startup India seed fund scheme implementation, execution, and monitoring committee (EAC) has been established by the department for the promotion of industry and internal trade. The lead organisation for putting this plan into action will be the Department for the Promotion of Industry and Internal Trade. In order to approve the seed fund, this committee will choose incubators and examine the information submitted by the incubators. Additionally, this group will keep an eye on the incubator’s development. The authority to take all necessary actions to ensure that the funds are used effectively belongs to the expert advisory group. 

Members of the expert advisory council include the following:

  1. Chairman
  2. representative of the biotechnology department
  3. Additional, joint, director, and deputy secretaries, DPIIT
  4. Department of Science and Technology representative
  5. DPIIT financial advisor
  6. A minister of electronics and information technology representative
  7. Indian Council of Agricultural Research representatives
  8. Minimum of three members proposed by secretary
  9. An official from NITI Aayog

Factors That Determine Whether Startup India Is Successfully Implemented Seed Fund Program:

  • Advancement of market introduction
  • Amount of the loan
  • The trial’s field progress
  • Creating jobs for startups
  • Product development progress
  • Change in a startup
  • Development of the prototype has advanced
  • Proof of concept progress

Application Process for Startup India’s Seed Fund Program:

For Incubators
  • First, visit the startup India seed money scheme’s official website.
  • Before you, the home page will load.
  • You need to click the apply now link on the homepage.
  • After that, you must select “Apply Now” from the area labelled “Incubator.”
  • You must now select “create an account”
  • Before you will see a new page.
  • You must enter your name, email address, mobile number, and password on this new page.
  • After that, you must select “register.”
  • You will receive an OTP at your registered ID.
  • You must input this OTP into the OTP box.
  • You must now select “submit.”
  • You then need to select the login option.
  • You must now choose your nation and activate the input box.
  • You must now choose the next option.
  • You’ll see the application form there.
  • You must provide your contact details and basic information on this application form.
  • After that, you must select “Save Profile.” Your profile will then be sent to a moderator for review.
  • You must re-login to the website and then select “Apply Now Under the Seed Fund Scheme”
  • You’ll see the application form there.
  • You must complete this application form completely, including all needed fields (general information, incubator team information, incubator support information, fund requirement information, etc.).
  • You must then upload all necessary documentation.
  • You must now select “submit.”
  • You can apply for the Startup India Seed Funds Program by following these steps.
For Start-Ups
  • Visit the Startup India Seed Fund Scheme website.
  • Before you, the home page will load.
  • You need to click the apply now link on the homepage.
  • Following that, you must select “Apply Now” from the startup area.
  • A form will then appear in front of you after that.
  • You must fill out this application form with all necessary information, including your name, email address, mobile number, etc.
  • The rest of the required documents must subsequently be uploaded.
  • You must now select “submit.”
  • You can apply as a startup under the Startup India Seed Fund Scheme by following this approach.

Disbursement of Seed Fund to Startups by Incubators:

The incubator shall distribute Seed Fund to a qualifying startup as follows:

For the purposes of validating Proof of Concept, prototype development, or product trials, the Government will give up to Rs. 20 Lakhs. The award will be paid out in stages based on reached milestones. These benchmarks may have to do with creating a prototype, conducting product testing, getting a product ready for sale, etc. For market entry, commercialization, or scaling up, the government will contribute up to Rs. 50 lakhs through convertible debentures, debt, or debt-linked securities.

Selection Procedure of Startups:

Through the official website or any other platform created especially for this purpose, all incubators located around the nation will be invited to take part in the startup India seed money plan.

When choosing an incubator, keep the following things in mind:

  • Amount of money used
  • Plan of deployment
  • How many businesses the incubator plans to sponsor
  • Mentoring offered throughout the past three years
  • Funding assistance provided throughout the past three years
  • The last three years of incubator support
  • Composition of ISMC
  • Infrastructure availability
  • Compliance with qualifying requirements
  • The Expert Advisory Committee is empowered to periodically modify the requirements for choosing incubators.
    Additionally, the expert advisory group will keep track of the grant’s development.
  • This program accepts applications from incubators throughout the year.

Related Frequently Asked Questions and Answers: 

Q1. When did the Indian government launch its startup seed money program?
Ans: The Government of India introduced the Startup India Seed Fund Scheme on January 16, 2016, in order to create a strong startup ecosystem and give entrepreneurs opportunity to expand their businesses. Our esteemed Prime Minister Mr. Narendra Modi made the announcement to establish this program.

Q2. The Startup India Seed Fund Scheme was started by WHO?
Ans: With an investment of INR 945 Crore, DPIIT established the Startup India Seed Fund Scheme (SISFS) to offer funding support to entrepreneurs for Proof of Concept, prototype development, product trials, market-entry, and commercialization.

Q3. What are the advantages of the beginning program?
Ans: The creation and invention of new goods and services as well as a rise in employment levels in India are the two main objectives of Startup India. Benefits of the Startup India Scheme include possibilities for networking, financial support, and government contracts.

Q4. Are Startups Subject to Taxation?
Ans: The amount collected by startups above the Fair Market Value (FMV) of the shares distributed to investors is free from income tax. The Department for Promotion of Industry and Internal Trade (DPIIT) should recognize such start-ups, and the total paid-up share capital and share premium, if any, after the share issue should not exceed INR 25 crore.

Q5. What kinds of businesses can participate in the startup program?
Ans: Business type: A company must be a partnership or a private limited company to submit an application under this plan. Annual turnover: A company’s annual turnover cannot exceed Rs. 25 crores in order to qualify for this program.

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