Govt Notifies Startup India Seed Fund Scheme, Releases Eligibility Criteria

The Indian government has approved the Startup India Seed Fund Scheme (SISFS), which will provide early-stage funding to tech startups via a corpus of INR 945 Cr, to be disbursed through select startup incubators between 2021-25. 

The Startup India Seed Fund was announced by Prime Minister Narendra Modi earlier this month to mark the fifth anniversary of the Startup India initiative. The funding will be provided for proof of concept, prototype development, product trials, market entry and commercialisation.

With the official gazette notification for the SISFS, the commerce ministry has also revealed the eligibility criteria for startups that wish to apply for the scheme. 

Only startups registered and recognised by the Department for Promotion of Industry and Internal Trade (DPIIT), the implementation agency for SISFS, will be eligible for the funding. As of this month, there are 42,813 Indian startups recognised by DPIIT. Startups also need to be incorporated not more than two years ago at the time of application. 

The gazette notification also includes detailed guidelines for startup incubators looking to participate in the scheme. The full guidelines can be found here. 

The applicant startups must have a business idea to develop a product or a service with the right market fit, viable commercialisation, and scope of scaling. Further, startups should be using technology in their core product or service, or business model, or distribution model, or methodology. 

While the scheme is sector-agnostic, the notification mentions that startups creating innovative solutions in sectors 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, etc, would be given preference. 

“Startups should not have received more than INR 10 Lakh of monetary support under any other government scheme. This does not include prize money from competitions and grand challenges, subsidised working space, founder monthly allowance, access to labs, or access to prototyping facilities,” the notification says. 

Only startups which have at least 51% shareholding by Indian promoters at the time of their application to a startup incubator for the scheme, will be eligible for a financial award.

An eligible startup would receive up to INR 20 lakh as a grant for validation of proof of concept, or prototype development, or product trials. The grant will be disbursed in milestone-based instalments. The startup would also be eligible for an award of up to INR 50 lakh through convertible debentures or debt or debt-linked instruments, to be utilised for market entry, or commercialisation, or scaling up.

The announcement of the seed fund comes after a terrific year for early-stage funding in India. The Inc42 Plus Annual Indian Tech Startup Funding Report 2020 shows that early-stage startups have attracted the investor’s eye. The total capital raised at the seed stage in 2020 was $403 Mn, which is nearly double of the $255 Mn raised at this stage in 2019. Bridge stage funding accounted for $221 Mn in 2020, almost 3x the $98 Mn raised in 2019.

But as seen in the data, new startup creation was hampered in 2020. New startup launches fell drastically in 2020 with just 1050 new startups incorporated, as compared to over 3,500 in 2019. Will the launch of the new Startup India Seed Fund help boost new venture creation in India?

Last year, Finance Minister Nirmala Sitharaman announced 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 her Union Budget 2020 address on February 01, 2020.

Now, ahead of the Union Budget for 2021, the government’s announcement of the Startup India Seed Fund is certainly good news for the startup ecosystem, but as seen in our in-depth look at the Startup India and related government policies, the rollout of these schemes and funds has been an issue.