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Startup India Seed Fund Scheme: Is Your Start-up Eligible?

If you have ever run or are running a start-up in India, you would know how difficult it is to get seed funding! The Indian government in order to further strengthen the start-up ecosystem, on January 16, 2021 launched an INR 1000 crore seed fund. This scheme is called the Startup India Seed Fund Scheme (“Seed Fund Scheme”) and will help startups by providing the much necessary initial capital for growth and operations. The government has decided to commit an INR 945 crore corpus for 4 years to fund startups eligible under the scheme through eligible incubators across India.

This scheme will be implemented by the Department of Promotion of Industry & Internal Trade (DPIIT), Ministry of Commerce. The seed fund can be utilized for the development of proofs of concept, prototype development, product trials, market-entry, and commercialization of products or ideas.

Let us see who is eligible for funding under the scheme and how it works!

What are the eligibility criteria for start-ups?

If you fulfil the following requirements, you would be eligible to apply for funding under this scheme:

  1. If you have incorporated your entity not more than 2 years ago and are recognized by DPIIT at the time of applying for the scheme.

  2. Your business idea is a product or a service that is suited to the market needs and has commercialization potential and a scope for scaling.

  3. You must use technology in your core product or service, or business model, or business model, or distribution model, or methodology used for solving the targeted problem.

  4. If your start-up devises 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 & gas, textiles, etc.

  5. You should not have received the aid of more than INR 10 lakhs from any Central or State government scheme. However, this does not cover any prize money received from competitions, grand challenges, subsidized working space, founder monthly allowance, access to labs, or access to prototyping facility.

  6. You should have a shareholding of at least 51% by Indian promoters at the time of application, according to the Companies Act, 2013 and SEBI (ICDR) Regulations, 2018.

What are the eligibility criteria for incubators?

If you are an incubator, then too you have to fulfil certain criteria under this scheme. These eligibility criteria are:

  1. The incubator must be a legal entity such as a society, trust, a company or a statutory body created by law.

  2. The incubator shall be operational for at least 2 years at the time of application.

  3. It should have facilities to accommodate at least 25 individuals.

  4. On the date of application, the incubator shall have at least 5 start-ups undergoing incubation physically.

  5. The incubator shall have a full-time Chief Executive Officer having experience in business development and entrepreneurship accompanied by a capable team responsible for mentoring start-ups in testing and validating ideas, in finance, legal and human resources functions as well.

  6. The incubator shall not be disbursing funds to incubatees using funding from any third-party entity.

  7. The incubator shall have the support of either the Central or State government or both.

  8. In case, there is no support from the Central or State government, other requirements are:

  9. The incubator shall be operational for at least 3 years.

  10. The incubator shall have a minimum of 10 start-ups undergoing incubation physically.

  11. The incubator shall present audited annual reports for the last 2 years.

  12. Any additional criteria as may be decided by the Experts Advisory Committee (EAC)

How is the Seed Fund disbursed?

The seed fund shall be disbursed to an eligible start-up in two stages. Firstly, an amount up to INR 20 lakhs as a grant for validation of Proof of Concept, or prototype development, or product trials. The grant shall be disbursed in the form of milestone-based instalments. When the start-up shall hit a milestone, an instalment shall be given to it for achieving the next milestone. Such milestones can be related to the development of prototypes, product testing, making a product ready to launch in the market, etc.

Secondly, an amount up to INR. 50 lakhs to initiate entry in the market, commercialization of the product, or scaling up through convertible debentures or debt or debt-linked instruments. Seed fund availed through the scheme should be strictly used for the purposes for which it was granted.

Which Authority regulates the Seed Fund Scheme?

To monitor the smooth functioning of the scheme, an Experts Advisory Committee (EAC) will be constituted by DPIIT which will look over the working and execution of the seed fund scheme. The EAC will evaluate and select the incubators for fund allotment, monitor the progress, and will take all the required steps to ensure efficient utilization of the funds in furtherance of the fulfilment of objectives under the scheme.

The EAC will provide the incubators with a grant of up to INR 5 crores in milestone-based three or more instalments. Such amount of grant and number of instalments will vary from an incubator to incubator and will be decided by the EAC.

How are Start-ups and Incubators selected under the Scheme?

An incubator can apply online (https://www.startupindia.gov.in ) and may be selected under this scheme if it fulfils the following requirements:

  1. Fulfilment of eligibility criteria

  2. Quality of the team of the incubator

  3. Availability of infrastructure, testing labs, etc.

  4. Composition of the Incubator Seed Management Committee

  5. Support provided by the incubator in the past 3 years

  6. Funding provided to incubatees in the past 3 years

  7. Mentoring provided to incubatees in last 3 years

  8. Any other support given to the incubatees in the past 3 years:

The EAC will meet at least quarterly to evaluate the application received, make selection of incubators, decide the amount and number of instalments in which this amount is to be allocated to an incubator and specify milestones to be achieved by the incubators for release of instalments.

Every incubator applying under the scheme will constitute a committee called Incubator Seed Management Committee (ISMC) having experts who will evaluate and select start-ups for seed support.

A start-up will be selected under this scheme through a process which is as follows:

  1. An online call for application on the Start-up India portal shall be hosted on an ongoing basis.

  2. Applicants shall select three incubators in order of their preference as their disbursing partners.

  3. Applications received will be shared with the respective incubators for further evaluation.

  4. Applicant may be asked to provide the details of their team profile, problem statement, product/service overview, business model, customer profile, market size, amount of fund needed, projected utilization of these funds, etc.

  5. ISMC shall evaluate applicants based on their submissions and presentations and select start-ups for funding within 45 days of receipt of application.

  6. Selected start-ups shall receive seed funding under the respective incubator that selects them as beneficiaries as per their preference.

To summarize, the Seed Fund Scheme is a stepping stone towards the growth of the start-up ecosystem in India. If you are a start-up who fulfils all the criteria, you may sign your financial woes away, as now you can get seed funding hassle-free from the government itself!

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