Startup India Seed Fund Scheme (SISFS)

The Startup India Seed Fund Scheme (SISFS) is a government initiative designed to provide crucial financial assistance to startups in their earliest stages. It supports startups through grants and funding for activities such as proof of concept, prototype development, product trials, and market entry. The scheme targets startups that have innovative ideas but face difficulty in accessing funds due to lack of assets or proven business models.

SISFS funds startups through eligible incubators across India. These incubators evaluate and select startups, then disburse funds in phases based on milestone achievements. The goal is to help startups move from the idea stage to commercialization, enabling them to attract further investment or loans from banks and venture capitalists.

Need for Startup India Seed Fund Scheme

Early-stage startups in India face a significant funding gap. Investors and banks usually require startups to show proven concepts or tangible assets before providing capital. This makes it difficult for startups to finance the critical initial steps of testing and validating their business ideas. Startup India Seed Fund Scheme addresses this gap by offering timely financial assistance to startups for essential activities such as proof of concept, prototype development, and product trials. 

This funding helps startups move from concept to commercialization, increasing their chances of success and growth. Startups in sectors like biotechnology, healthcare, agriculture, and social impact often struggle to find seed funding, as these fields involve longer validation processes and higher risks. The SISFS scheme supports such startups, ensuring that India’s innovative ideas are nurtured and scaled efficiently.

• Provide financial assistance to startups at the early stages for:

1. Proof of Concept validation
2. Prototype Development
3. Product Trials
4. Market Entry
5. Commercialization

• Bridge the gap between startup ideas and investors by helping startups prove their concepts and create market-ready products.
• Enable startups to graduate to a level where they can raise funds from angel investors, venture capitalists, or secure loans from banks.
• Foster a supportive ecosystem for startups, driving innovation, economic growth, and job creation.

The Features of Startup India Seed Fund Scheme make it highly accessible and inclusive:

• Applications Open All Year: The scheme accepts applications from startups and incubators throughout the year. This continuous process ensures regular support and funding opportunities.
• Works Across All Sectors: This is a sector-agnostic scheme. It supports startups from every industry, including technology, healthcare, education, agriculture, fintech, and social impact.
• No Need for Physical Presence: Startups do not need to be physically present at incubators to receive funding. This feature makes the scheme more flexible and accessible.
• Covers the Entire Country: The scheme runs as a PAN-India program. Startups and incubators from any state or region can take part and benefit equally.
• Apply to Multiple Incubators: A startup can apply to up to three incubators at once. This increases the chances of getting selected and receiving seed funding support.

Experts Advisory Committee (EAC)

An Experts Advisory Committee (EAC) oversees the effective implementation and monitoring of the Startup India Seed Fund Scheme. The EAC consists of experts from various government departments, startup ecosystems, and industry specialists.

Roles of EAC:

• Evaluate and select incubators eligible for seed fund allocation.
• Monitor the progress of incubators and startups.
• Set milestones for disbursal of funds.
• Recommend improvements and new guidelines.
• Ensure transparent and efficient utilization of funds.

Incubators play a crucial role in disbursing seed funds to startups. The scheme provides grants and guidelines to support incubators in their activities.

• The EAC evaluates incubators and awards grants up to Rs. 5 crore in milestone-based installments.
• Grants must be used exclusively for seed fund disbursal to startups, not for infrastructure or other expenses.
• Incubators receive a management fee of 5% of the seed fund grant for administrative and monitoring costs.
• The management fee cannot be used for facility creation or unrelated expenses.
• Installments are released based on milestone achievements and proper documentation.
• The first installment can be up to 40% of the total approved amount.
• Subsequent installments are released when incubators’ cash-in-hand falls below 10% of total funds.
• Incubators must fully utilize grants within three years of receiving funds.
• If at least 50% of the grant is not utilized within two years, further disbursement is stopped, and unspent funds must be returned with interest.
• Interest earned on unutilized funds is adjusted during the next installment release.
• Incubators are responsible for proper seed fund management and transparent disbursal.
• Incubators provide startups with access to infrastructure, mentoring, networking, and support for commercialization without charging fees to startups.

Guidelines for Disbursement of Seed Fund to Startups by Incubators

Seed fund disbursement to startups is carefully regulated to ensure proper use and accountability.

• Startups may receive up to Rs. 20 lakh as a grant for activities like proof of concept, prototype development, or product trials in milestone-based installments.
• Up to Rs. 50 lakh can be provided as investment through convertible debentures, debt, or debt-linked instruments for market entry, commercialization, or scaling up.
• Seed funds cannot be used for creating facilities or infrastructure.
• Not more than 20% of total grants should be given to startups; the rest is managed by incubators.
• Interest rates on loans to startups are capped at the prevailing repo rate.
• Loan tenure is a maximum of 60 months with a moratorium of up to 12 months.
• Loans are unsecured and do not require guarantees.
• Legal agreements are signed between incubators and startups before fund release.
• Subsequent disbursements depend on milestone achievement.
• Startups receive funds directly into their company bank accounts.

Process of selecting eligible incubators and startups for receiving financial assistance through SISFS:

Selection of Incubators

• Incubators apply online through the Startup India portal.
• Selection criteria include eligibility, team quality, infrastructure, previous incubation success, and fund deployment plans.
• The Experts Advisory Committee reviews and selects incubators quarterly.
• Incubators with proven success in mentoring startups, raising follow-on investments, and supporting commercialization have higher chances.
• Continuous evaluation and monitoring are done to ensure incubator performance.

Selection of Startups

• Each incubator forms an Incubator Seed Management Committee (ISMC) with experts from government, industry, academia, investors, and entrepreneurs.
• Startups apply online, selecting up to three preferred incubators.
• ISMC evaluates startups based on market need, feasibility, potential impact, novelty, team strength, and fund utilization plan.
• Shortlisted startups present their ideas before ISMC for final selection.
• The incubator chosen as the startup’s highest preference disburses seed funding.

Both startups and incubators have different eligibility criteria. Here are the criteria:

Eligibility Criteria for Startups

Startups must fulfill these criteria to apply for the Startup India Seed Fund Scheme:

• The startup should be recognized by DPIIT and must be incorporated within the last 2 years at the time of application.
• The startup must have a business idea to develop a product or service with market fit, clear commercialization potential, and scalability.
• The startup should use technology in its main product, service, business model, distribution method, or problem-solving approach.
• Preference goes to startups creating innovative solutions in sectors like social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defence, space, railways, oil and gas, and textiles.
• The startup should not have received more than Rs 10 lakh as monetary support under any other Central or State Government scheme. Prize money, subsidized workspace, founder allowances, or lab and prototyping access do not count.
• Indian promoters must hold at least 51% shareholding in the startup at the time of application, following the Companies Act 2013 and SEBI (ICDR) regulations.
• The startup can receive seed funding only once under this scheme, as per the scheme’s rules.

Eligibility Criteria for Incubators

Incubators applying for the Startup India Seed Fund Scheme must meet these conditions:

• The incubator must be a legal entity, such as:

1. A society registered under the Societies Registration Act, 1860, or
2. A trust registered under the Indian Trusts Act, 1882, or
3. A private limited company registered under the Companies Act 1956 or 2013, or
4. A statutory body created by an Act of legislature.

• The incubator must be operational for at least 2 years at the time of application.
• The incubator must have seating capacity for at least 25 people.
• The incubator must have at least 5 startups physically incubated on the application date.
• The incubator must have a full-time CEO experienced in business development and entrepreneurship, supported by a capable team for mentoring startups in idea testing, validation, finance, legal, and HR.
• The incubator must not use third-party private funding to give seed funds to startups.
• The incubator must have received assistance from Central or State Government(s).
• If not assisted by government, the incubator must:

1. Be operational for at least 3 years,
2. Have at least 10 startups physically incubated on the application date,
3. Provide audited annual reports for the last 2 years.

• Any other criteria decided by the Expert Advisory Committee (EAC).

The scheme works by channeling funds through eligible incubators that support startups at various stages.

• Startup Application: DPIIT-recognized startups apply through the Startup India Seed Fund portal.
• Evaluation and Selection: Incubators’ ISMC committees evaluate startups based on innovation, team, market potential, and funding plan.
• Funding Disbursement: Funds are disbursed in milestone-based installments for proof of concept, prototype, product trials, market entry, and commercialization.
• Additional Support: Incubators provide mentoring, infrastructure access, legal and financial advice, networking, and showcase opportunities.

Corpseed is one of the top consulting firms, offering comprehensive assistance on government schemes and benefits, guiding businesses through the necessary processes. The Startup India Seed Fund Scheme, launched by the government, supports early-stage startups with financial help and resources. Corpseed can play a crucial role in assisting startups to access these funds and navigate through the complexities of the application process.

• Expert Guidance: Our team of professionals helps startups understand the eligibility criteria and necessary documentation, ensuring that all required paperwork is in place.
• Application Process Support: We offer end-to-end assistance in filling out the application forms, ensuring accuracy and completeness to avoid delays.
• Compliance and Legal Help: Corpseed helps startups with the necessary legal and compliance requirements, ensuring they meet all conditions laid out by the government.
• Follow-Up and Monitoring: We provide support throughout the application process, following up with authorities to ensure timely approvals and funding disbursal.