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Startup India Seed Fund Scheme

Updated on:  

08 min read

The Department for Promotion of Industry and Internal Trade (DPIIT) created the Startup India Seed Fund Scheme (SISFS) with an outlay of Rs.945 crore to provide financial assistance to the startups for prototype development, proof of concept, market-entry, product trials, and commercialisation. 

The Hon’ble Prime Minister, Shri. Narendra Modi announced the SISFS scheme on 16th January 2021. After the approval from the Hon’ble Finance Minister and the Expenditure Finance Committee (EFC), the DPIIT notified this scheme on 21st January 2021.

The funding from the venture capital firms and angel investors is available to startups only after providing their proof of concept. Similarly, banks offer loans to asset-backed startups. Thus, it is necessary to provide seed funding to the startups in India having an innovative idea to conduct proof of concept trials.

The SISFS provides seed funding to eligible startups through incubators across India for developing proof of concept. It will support approximately 3,600 entrepreneurs through 300 incubators in the next four years, i.e. 2021-2025. The seed fund will enable the startups to seek loans from commercial banks or financial institutions or raise investments from angel investors or venture capitalists. 

Objectives of SISFS

The startup ecosystem in India generally suffers from capital inadequacy in the proof of concept development stage. The capital required by the startups at the stage of developing the proof of concept often makes or breaks a situation for startups with good business ideas.

Several innovative business ideas fail due to inadequate critical capital requirements at an early stage for prototype development, proof of concept, market-entry, product trials and commercialisation. Seed funding to such promising startups can have a multiplier effect for validating the business ideas of startups, ultimately leading to employment generation.

Eligibility Criteria for SISFS

The eligibility criteria for a startup and incubator to apply for the Startup India Seed Fund Scheme are mentioned below.

Eligibility Criteria for Startups Under SISFS

  • A startup recognised by the DPIIT and incorporated or registered not older than two years at the time of filing an application.
  • Startups should have a business idea to develop a service or product with viable commercialisation, market fit and scope of scaling. 
  • Startups must use technology in their core service, product, distribution model, business model or methodology to solve the targeted problem. 
  • Preference is given to startups inventing innovative solutions in sectors like waste management, social impact, water management, education, financial inclusion, food processing, agriculture, healthcare, biotechnology, mobility, energy, space, defence, oil and gas, textiles, railways, etc. 
  • Startups that have received more than Rs.10 lakh of monetary support under any Central or State Government scheme are not eligible under this scheme. This amount does not include subsidised working space, prize money from competitions and grand challenges, access to labs, founder monthly allowance or access to prototyping facility. 
  • The shareholding of an Indian promoter in a startup must be at least 51% at the time of application to the incubator as per the Companies Act, 2013 and SEBI (ICDR) Regulations, 2018. 
  • A startup can obtain seed support in the form of grants and convertible/debt debentures, each one according to the scheme guidelines. 

Eligibility Criteria for Incubators Under SISFS

  • The incubator should be a legal entity, i.e. either of the following entity:
    • Society registered or incorporated under the Societies Registration Act, 1860.
    • Private Limited Company registered or incorporated under the applicable provisions of the Companies Act, 2013, or Companies Act, 1956.
    • Trust registered or incorporated under the Indian Trusts Act, 1882.
    • The statutory body created through an Act of the legislature. 
  • Incubators must be operational for at least two years prior to the date of filing the application. 
  • Incubators should have seating facilities of at least 25 individuals. 
  • Incubators should have at least five startups undergoing incubation physically prior to the date of filing the application. 
  • Incubators need to have a full-time Chief Executive Officer, experienced in entrepreneurship and business development and supported by a team capable and responsible for mentoring startups in validating and testing, legal, finance, and human resources functions. 
  • Incubators must not be disbursing seed funds to incubatees using funding from any third-party private entity. 
  • The Central or State Governments should have assisted incubators.
  • In case the Central or State Governments have not assisted the incubators, they must satisfy the following conditions to be eligible:
    • Must be operational for a minimum of three years. 
    • Must have at least ten separate startups undergoing incubation physically on the date of application. 
    • Must give the audited annual reports for the last two years. 
  • Any additional criteria decided by the Experts Advisory Committee (EAC).

Application for Startup India Seed Fund Scheme

Application Procedure for Startups

The application procedure for availing the seed fund from the incubators by the startups under the SISFS are as follows:

  • Go to the official Startup India Seed Fund Scheme website.
  • Click on the ‘Login’ button on the top right-hand side of the homepage.
  • The ‘Login’ tab will open. Click on the ‘Create an Account’ option at the bottom of the tab.
  • The registration page of the ‘Startup India’ website will open.
  • Enter the name, email ID, mobile number, password, confirm the password and click on the ‘Register’ button.
  • An OTP will be sent to the applicants’ registered mobile numbers. Enter the OTP and click on the ‘Submit’ button.
  • Go to the official Startup India Seed Fund Scheme website and click on the ‘Apply Now’ button on the right-hand side of the homepage. 
  • Select the ‘Apply Now’ button under the ‘For Startups’ option and log in using the username and password registered on the Startup India website.
  • The application form will open. Enter all the details on the application form, upload the documents and click on the ‘Submit’ button.

Upon clicking on the ‘Submit’ button, the application will be submitted for selection of the startup for seed funding under the SISFS scheme.

Application Procedure for Incubators

The application procedure for incubators to apply for the SISFS are as follows:

  • Go to the official Startup India Seed Fund Scheme website.
  • Click on the ‘Login’ button on the top right-hand side of the homepage.
  • The ‘Login’ tab will open. Click on the ‘Create an Account’ option at the bottom of the tab.
  • The registration page of the ‘Startup India’ website will open.
  • Enter the name, email ID, mobile number, password, confirm the password and click on the ‘Register’ button.
  • An OTP will be sent to the applicant’s registered mobile number. Enter the OTP and click on the ‘Submit’ button.
  • Go to the official Startup India Seed Fund Scheme website and click on the ‘Apply Now’ button on the right-hand side of the homepage. 
  • Select the ‘Apply Now’ button under the ‘For Incubators’ option and log in using the username and password registered on the Startup India website.
  • Select the country, click on the input letterbox and click on the ‘Next’ option. 
  • The application form will open. Enter all the details in the application form and click on the ‘Save Profile’ button.
  • The profile will be sent to a moderator for approval. After approval, log in to the Startup India Seed Fund Scheme website.
  • Click on ‘Apply Now’ under the seed fund scheme. 
  • Enter the details in the application form such as general detail, incubator support detail, incubator team detail, fund requirement details, etc.
  • Upload the documents and click on the ‘Submit’ button.

On clicking the ‘Submit’ button, the incubator will have applied for the SISFS.

Disbursement of Seed Fund by Incubators to Startups

The incubator will disburse the seed fund to an eligible startup as follows: 

  • Up to Rs.20 lakh as a grant for validation of prototype development, proof of concept or product trials. The incubator will dispose of the grant in milestone-based instalments related to the development of a prototype, building a product ready for market launch, product testing, etc. 
  • Up to Rs.50 lakh of investment for commercialisation, market entry or scaling up through debt, convertible debentures or debt-linked instruments. 
  • The startups cannot use the seed fund for the creation of any facilities and should utilise it for the purpose it has been granted. 
  • The incubator cannot give more than 20% of its total grant as grants to startups.
  • The funds will be given to startups at the rate of interest not more than the prevailing repo rate for startups supported through debt, convertible debentures or debt-linked instruments.
  • The incubator should fix the tenure when sanctioning the loan; however, it cannot be more than five years. A moratorium of up to 12 months can be provided for the startups. 
  • The loans sanctioned by the incubator will be unsecured due to the early stage of the startups. Thus, the promoter or third party need not give any guarantee. 
  • The incubator will execute a legal agreement with the eligible startups before releasing the first instalment. 
  • Subsequent disbursements of the instalments will be linked to the achievement of the previously specified milestones as per agreement between the incubator and startup. 
  • The startups will receive the funds in their company bank accounts. 
  • The first instalment to the eligible startup will be released within 60 days from receipt of application from the startup. 
  • The eligible startup should submit the utilisation certificate and interim progress update to initiate the release of subsequent instalment of the grant. 

Implementation of SISFS

The DPIIT has constituted an Experts Advisory Committee (EAC) that is responsible for the monitoring and execution of the SISFS. The EAC evaluates and selects the incubators for allotting seed funds, monitor progress and undertake the necessary measures for efficient utilisation of funds towards the fulfilment of objectives of the SISFS. 

The EAC evaluates the selected incubators for grant assistance and provides a grant of up to Rs.5 crore to the selected incubators in milestone-based three or more instalments. The EAC decides the exact instalments and quantum of grants for each incubator based on its evaluation. 

Every incubator under the SISFS will constitute a committee known as the Incubator Seed Management Committee (ISMC), consisting of experts who can select and evaluate startups for seed support. The incubators may shortlist startup applicants based on their evaluation for a presentation before the ISMC. 

The ISMC will evaluate applicants based on their presentations and submissions and select the startups for the seed fund within 45 days of receiving applications. The selected startups will receive seed funding under the respective incubator that selects them as beneficiaries according to their preferences shared in the applications. 

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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