Union Budget 2020: Govt To Set Up Seed Fund To Support Early Stage Startups

Presenting the first budget of a new decade, finance minister Nirmala Sitharaman today (February 1) called on Indian entrepreneurs and said that entrepreneurship has always been the strength of India and proposed a seed fund.

“We recognise knowledge skills and risk-taking capabilities of youth. They are not job seekers, but job creators,” Sitharaman said. In part two of the government’s plan for 2020 in the union budget, the minister revealed the plans to set up a seed fund for early-stage startups.

“The government proposes to provide early life funding, including a seed fund to support ideation and development of early-stage startups,” the minister said during the presentation of union budget 2020.

However, it is unclear if this is the same seed fund which Prime Minister Narendra Modi had proposed in his election manifesto. The Modi government in its election manifesto had announced plans to create an INR 20K Cr Seed Fund.

At present, there are over 416 venture funds who have a focus on the early-stage startups in India. The marquee VC funds like Tiger Global Management, Sequoia Capital India, Blume Ventures, Nexus Venture Partners among others are already working in parallel with angel networks, HNI’s and corporate investors; and aggressively trying to bridge the gap between early-and late-stage ecosystems.

In 2019, the seed stage funding continued to fall. With $252 Mn in funding, the seed-stage deal value fell by 44% (compared to 2018) as only 306 seed funding deals were recorded. When it comes to early-stage seed funding, the Indian startup ecosystem is going through a slowdown.

The ruling government has boasted about setting up an INR 20K Cr seed fund by 2024 on multiple times, but with early-stage angel and seed investment drying up. Would this new proposed seed fund help the early-stage ecosystem, it remains to be seen.

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