INR 945 Cr Startup India Seed Fund Plans Support For 3.6K Startups

Commerce and industry minister Piyush Goyal, on Monday (April 19), launched a INR 945 Cr Startup India Seed Fund scheme to support domestic innovation and help Indian entrepreneurs raise critical capital at an early stage.

The Startup India seed fund, which has been approved for the next four year starting April 1 this year, is expected to support about 3,600 startups and 300 incubators. The amount will be disbursed through select startup incubators between 2021-25, the scheme doesn’t require physical incubation and allows startups to apply to the incubators simultaneously.

The call for incubators opened today, whereas applications for startups would open on July 1.

The scheme aims to provide financial assistance to startups for proof of concept, prototype development, product trails, market entry and commercialisation. While the scheme is sector-agnostic, the notification, rolled out earlier in January, 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.

Goyal said the goal is to help protect Indian startups and ideas from being bought out by foreign or savvy investors for cheap. As per the Department for Promotion of Industry and Internal Trade (DPIIT), the government will provide grants of up to INR 5 Cr to eligible incubators in three or more tranches and the quantum of the first instalment may be upto 40% of the approved commitment. “A component of management fee of 5% of the seed fund grant to the incubator will be provisioned,” the department said.

Under the scheme, grants up to INR 20 Lakh will be provided to the startups for ‘Proof of Concept’ whereas funding up to INR 50 Lakh can also be availed through convertible debentures or debt-linked investments for commercialisation or scale up support. DPIIT said that not more than 25% of total grants to incubators shall be given as grants to startups.

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.

In the first quarter of 2021, $2.73 Bn was invested in the Indian startup ecosystem. Overall, the first quarter can be considered encouraging for Indian startups seeking seed or early-stage funding. Over $125 Mn of seed funding was poured into startups in Q1 of 2021, compared to $150 Mn invested in Q4 of 2020 (16% decline), but a 17% increase from $107 Mn in Q1 2020. The average ticket size fell from $2.2 Mn in Q1 2020 to $1.5 Mn in Q1 2021, as per Inc42 Plus’ The Indian Tech Startup Funding Amount Q1 2021 report.