Startup India Seed Fund Scheme: For Startups, Process, Aims & Eligibility Criteria

The first phase of investment for any startup is known as seed funding; during this time, the company may have only a product idea and be validating the market. This funding typically entails risk on the part of the initial investors because the startup is still in its early stages and frequently hasn’t shown its worth in the market.  Here are 6 Proven Risk Mitigation strategies for startups.

However, the startup seed fund scheme of India can be extremely helpful when any startup is looking for seed funds to penetrate the market with financial support. Till now, 133 incubators have received approval for the total amount of Rs. 477.25 crore for seed funding under this scheme.

In this blog post, we will explore this scheme’s objectives, eligibility criteria, process, required documents, and benefits. 

Objectives of Startup Seed Fund Scheme

The goal of the Startup India Seed Fund Scheme (SISFS) is to give startups the money they need for product trials, market-entry, prototype development, proof of concept, and commercialization. By doing this, these startups would be able to advance to the point where they could look to commercial banks or other financial institutions for loans or raise money from angel investors or venture capitalists. 

This government program aims to create an entrepreneurial spirit among youngsters and to develop the nation’s economy.

Eligibility Criteria

The following list mentions the eligibility criteria for any startup to benefit from a seed fund scheme. Please review it to understand better.

1. A DPIIT-recognized startup that had only been incorporated for two years before the application. Please go to this website to obtain DPIIT recognition.
2. A solid business plan for a startup is essential to create a good product or service with market fit, feasible commercialization, and room to grow.
3. To address the issue at hand, technology should be incorporated into the startup’s main offering, business plan, distribution strategy, and approach.
4. Innovative solutions in the following areas would be prioritized: energy, mobility, defense, space, railroads, oil and gas, textiles, education, agriculture, food processing, waste management, water management, financial inclusion, and biotechnology.
5. A startup should not have been eligible for any other Central or State Government scheme that provided more than Rs. 10 lakh in financial support. Prize money from contests and grand challenges, subsidized workspace, a monthly stipend for the founder, lab access, and prototyping facilities are not included in this.
6. According to the Companies Act of 2013 and the SEBI (ICDR) Regulations of 2018, the startup’s Indian promoters must hold at least 51% of the company’s shares at the time of application to the incubator for the scheme.
7. According to the scheme guidelines, a startup applicant can receive seed funds once in the form of a grant and once in the form of debt/convertible debentures.

How to Apply for Startup Seed Funding Scheme?

Follow the below-mentioned steps to apply for a startup india seed fund and leverage its benefits:

• Step 1: The Startup India portal will regularly host an online call for applications.
• Step 2: The startup that has received DPIIT recognition can apply via the official Startup India Portal. 
• Step 3: Select “Apply Now” for startups from the main page by clicking on the “Apply Now” button.
• Step 4: The startup can apply for the scheme and apply by logging in with the credentials used during the startup recognition process.
• Step 5: Applicants may submit seed fund scheme applications, in order of preference, to any one of the three incubators chosen to serve as disbursing partners for this program.

Documents Required 

To successfully apply for the SISFS scheme, you need to have the following documents:

Board decision, PoA (Power of Attorney), or authorization letter

1. PAN card; 
2. GST number; 
3. Aadhaar card; 
4. Details of bank account
5. The partnership agreement or certificate of incorporation 
6. The financial statements  
7. A startup-related video that highlights your product, service, or business plan
8. Any additional necessary relevant documents.

Benefits of the Startup India Seed Fund Scheme

• A grant of up to Rs.20 Lakhs may be given for product trials, prototype development, or proof of concept validation. The grant will be distributed in installments based on milestones. These milestones may pertain to the creation of prototypes, conducting product testing, constructing a product prepared for commercial release, etc. 
• To enter the market, commercialize, or expand, a maximum of Rs.50 Lakhs may be invested in convertible debentures, debt, or debt-linked securities. 
• Seed fund investors not only provide financial support but also guide startup founders, helping them gain valuable insights required for a startup’s success.

Key Takeaway

An incubator may award grants to start-ups equal to no more than 20% of the total amount granted to the incubator. At the time of DPIIT’s subsequent release, the interest rate (as specified by GFR) on unused funds held by the incubator would also be considered and modified.

Funds shall be supplied at an interest rate not exceeding the current repo rate for startups supported by convertible debentures, debt, or debt-linked instruments. The term, which cannot exceed 60 months (5 years), should be agreed upon when the incubator approves the loan. For the startups, a moratorium of up to 12 months may be granted. 

Before the first installment is released, the incubator and the chosen startups must sign a legal agreement. The incubators are responsible for making sure that the agreement contains all relevant terms and conditions, including potential milestones of the project. 

FAQ

How does the Startup India seed fund scheme function?

Through the Startup India Seed Fund Scheme (SISFS), startups financial support for proof of concept, prototype development, product trials, market-entry, and commercialization.    

For whom is seed funding available?

Applications for Startup India Seed Funds are only accepted from incorporated entities, as these are the only entities eligible to be recognized as Startups. These consist of One Person Companies, Limited Liability Partnerships, Private Limited Companies, and Registered Partnership Firms.

What is the seed fund’s maximum limit?

The incubator will distribute the Seed Fund to a qualified startup in the following ways: A grant of up to Rs. 20 lakhs for product trials, prototype development, or proof of concept validation. And upto 50 lakhs may be invested in convertible debentures, debt, or debt-linked securities to enter the market, commercialize, or expand.