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Startup India Seed Fund Scheme (SISFS)

To foster growth and development in the startup sector, the Central Government recently notified the ‘Startup India Seed Fund Scheme’ (“SISFS”). The objective of the SISFS is to establish a structure that provides monetary benefits to eligible startups for proof of concept, prototype development, product trials, market entry, and commercialization. The Startup India Seed Fund, which has a target corpus of Rs 945 crore to be disbursed over five years in early-stage startups, is looking to support around 3,600 entrepreneurs through 300 incubators.

The objective of the SISFS

Startup India Seed Fund Scheme (SISFS) aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market-entry, and commercialization. This would enable these startups to graduate to a level where they will be able to raise investments from angel investors or venture capitalists or seek loans from commercial banks or financial institutions.

Features of the SISFS

On February 5, 2021, the Government of India made an official announcement about the approval of SISFS. It has been approved for four years and was implemented with effect from April 1, 2021.

• The Seed Fund will be disbursed to eligible startups through eligible incubators across India.
• Once incubated, the startups will be provided physical infrastructure, support for testing, mentoring for prototype or commercialization, human resources, and legal compliances, all by the incubators

Eligibility Criteria for Startups

The eligibility criteria for a startup to apply under the Startup India Seed Fund Scheme are as follows:

• A startup should be recognized by DPIIT and incorporated not more than 2 years ago at the time of application
• The startup must have a business idea to develop a product or a service with the market fit, viable commercialization, and scope of scaling
• A startup should be using technology in their core product, service, business model, distribution model, methodology to solve the problem being targeted
• A startup should not have received more than Rs. 10 lakh of monetary support under any other Government scheme. This does not include prize money from competitions and grand challenges, subsidized working space, founder monthly allowance, access to labs, or access to prototyping facility
• Shareholding by Indian promoters in the startup should be at least 51%, as per the Companies Act, 2013 and SEBI (ICDR) Regulations, 2018
• Preference will be provided to startups creating innovative solutions in the following sectors:
  • Social impact
  • Waste management and Water management
  • Financial inclusion
  • Education and Agriculture
  • Food processing and Biotechnology
  • Healthcare
  • Energy and mobility
  • Defence and space
  • Railways and Textiles
  • Oil and gas

Eligibility Criteria for Incubators

The eligibility criteria for an incubator to apply in the Startup India Seed Fund scheme are as follows:

• The incubator must be a legal entity:
  • A society registered under the Societies Registration Act 1860
  • A Trust registered under the Indian Trusts Act 1882
  • A Private Limited company registered under the Companies Act 1956 of the Companies Act 2013
  • A statutory body created through an Act of the legislature
• The incubator should be operational for at least two years on the date of application to the scheme
• The incubator must have facilities to seat at least 25 individuals
• The incubator must have at least 5 startups undergoing incubation physically on the date of application
• The incubator must have a full-time Chief Executive Officer, experienced in business development and entrepreneurship, supported by a capable team responsible for mentoring startups in testing and validating ideas, as well as in finance, legal, and human resources functions
• The incubator should not be disbursing seed fund to startups using funding from any third-party private entity
• The incubator must have been assisted by the Central/State Government
• In case the incubator has not been assisted by the Central or State Government:
  • The incubator must be operational for at least three years
  • Must have at least 10 separate startups undergoing incubation in the incubator physically on the date of application
  • Must present audited annual reports for the last 2 years

Experts Advisory Committee (EAC)

An Experts Advisory Committee (EAC) will be constituted by DPIIT, which will be responsible for the overall execution and monitoring of the Startup India Seed Fund Scheme. The EAC will evaluate and select incubators for allotment of Seed Funds, monitor progress, and take all necessary measures for efficient utilization of funds towards the fulfilment of objectives of Startup India Seed Fund Scheme

Assistance to Incubators

• Experts Advisory Committee (EAC) will evaluate incubators for grant assistance. A Grant of up to Rs. 5 Crores will be provided to a selected incubator in milestone-based three (or) more instalments.
• The exact quantum of grant and instalments for each incubator will be decided by the Experts Advisory Committee (EAC) based on its evaluation

Selection of Incubators

Online Applications will be invited from incubators across India to participate in the scheme. The applicant needs to apply to the scheme through the official webpage of Startup India.

Incubators shall be selected based on the following parameters:

• Fulfilment of eligibility criteria
• Quality of the team of Incubator
• Available infrastructure, testing labs
• Composition of ISMC
• Incubation support provided by the incubator in the last three years
• Funding support extended to startups in the last three years
• Mentoring provided to startups in last three years:
• Other support extended to startups in the last three years
• Number of startups that the incubator intends to support
• Quantum of funds applied for, along with fund deployment plan with timelines

Startup India Seed Fund Scheme Application Procedure

The application for Startup India Seed Fund Scheme is as follows:

Selection of Startup

Incubators applying for the Startup India Seed Fund Scheme will constitute a committee called the Incubator Seed Management Committee (ISMC), consisting of experts who can evaluate and select startups for seed support.

Online Application

An online call for applications will be hosted on an ongoing basis on the Startup India portal

Entrepreneurs can apply for seed funds to any three incubators selected as disbursing partners for this scheme in order of their preference. The applicant needs to provide the following details:

• Team profile
• Problem statement
• Product/service overview
• Business model
• Customer profile
• Market size
• Quantum of funds needed
• Projected utilization plan for funds

Evaluation of Application

All applications received will be shared online with respective incubators for further evaluation. Eligible applications will be evaluated by ISMC using the following criteria:

Sl.No	Criteria	Details	The weightage (%)
1	Idea	Market size, what market gap is it filling, does it solve a real-world problem?	P
2	Feasibility	Feasibility and reasonability of the technical claims, methodology used/ to be used for PoC and validation, a roadmap for product development	Q
3	Potential Impact	Customer demographic & the technology’s effect on these, national importance (if any)	R
4	Novelty	USP of the technology, associated IP	S
5	Team	Strength of the team, Technical and business expertise	T
6	Fund Utilization Plan	Roadmap of money utilization	U
7	Additional Parameters	Any additional parameters considered appropriate by the incubator	V
8	Presentation	Overall assessment	w

• The incubator may shortlist applicants based on their evaluation for a presentation before ISMC
• ISMC shall evaluate applicants based on their submissions and presentations and select startups for Seed Fund within 45 days of receipt of the application
• All incubators shall provide information about the progress of evaluation of startups in real-time to the Startup India portal

Disbursement of Seed Fund

• Selected startups shall receive seed funding under the respective incubator that selects them as beneficiaries as per the preference shared during the application
• All applicants will be able to track the progress of their application on the Startup India portal on a real-time basis

Note: Applicants who are rejected will also be notified through email and an applicant, if rejected once, may apply afresh

Disbursement of Seed Fund to Startups by Incubators

Seed Fund to an eligible startup by the incubator shall be disbursed as follows:

The Government will provide up to Rs. 20 Lakhs as a grant for validation of Proof of Concept, or prototype development, or product trials. The grant will be disbursed in milestone-based instalments. These milestones can be related to the development of a prototype, product testing, building a product ready for market launch, etc.

The Government will provide up to Rs. 50 Lakhs of investment for market entry, commercialization, or scaling up through convertible debentures or debt or debt-linked instruments