Startup India Seed Fund Scheme is the initiative of the Government of India envisages building a robust Start-up ecosystem in the country for nurturing innovation and providing opportunities to budding entrepreneurs.
An Action Plan with 19 action points for the Startup India initiative was unveiled by the Hon’ble Prime Minister on January 16, 2016.
This Action Plan laid down a roadmap for the creation of a conducive ecosystem for Startups in India. Subsequently, many activities have been undertaken to encourage Startups. Startup India Seed Fund Scheme (SISFS) is one such scheme provides financial assistance to early-stage startups.
What is Startup India Seed Fund Scheme?
Easy availability of capital is essential for entrepreneurs at the early stages of growth of an enterprise.
Funding from angel investors and venture capital firms becomes available to startups only after the proof of concept has been provided. Similarly, banks provide loans only to asset-backed applicants. It is essential to provide seed funding to startups with an innovative idea to conduct proof of concept trials.
DPIIT has created Startup India Seed Fund Scheme (SISFS) with an outlay of INR 945 Crore to provide financial assistance to startups for Proof of Concept, prototype development, product trials, market entry, and commercialization. It will support an estimated 3,600 entrepreneurs through 300 incubators in the next 4 years.
The Hon’ble Prime Minister of India announced the scheme in his Grand Plenary address of Prarambh: Startup India International Summit on 16th January 2021. After approval of EFC and Hon’ble Finance Minister, the scheme has been notified on 21.01.2021.
The Seed Fund will be disbursed to eligible startups through eligible incubators across India.
Objectives of SISFS
The Government of India launched Start-up India Seed Fund Scheme 2021 to foster the growth of Startups in India. The SISFS was launched on the 16th of January 2016 to provide opportunities for entrepreneurs to grow their enterprises. Financial assistance of up to Rs.50 lakh will be provided to the startups to the startups at an early stage through the incubators The fund will be used for proof of concept, prototype development, product trial, market entry, commercialization, etc
The Indian startup ecosystem suffers from capital inadequacy in the seed and ‘Proof of Concept’ development stage.
The capital required at this stage often presents a make or break situation for startups with good business ideas.
Many innovative business ideas fail to take off due to the absence of this critical capital required at an early stage for proof of concept, prototype development, product trials, market entry and commercialization.
Seed Fund offered to such promising cases can have a multiplier effect in validation of business ideas of many startups, leading to employment generation.
Benefits of the Startup India Seed Fund Scheme
On February 5, 2021, the Government of India made an official announcement about the approval of the Startup India Seed Fund Scheme. 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
- A startup, recognized by DPIIT, incorporated not more than 2 years ago at the time of application.
To get DPIIT-recognized, please visit https://www.startupindia.gov.in/content/sih/en/startupgov/startup-recognition-page.html - The startup must have a business idea to develop a product or a service with a market fit, viable commercialization, and scope of scaling.
- The startup should be using technology in its core product or service, or business model, or distribution model, or methodology to solve the problem being targeted.
- Preference would be given to startups creating innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defence, space, railways, oil and gas, textiles, etc.
- Startup should not have received more than Rs 10 lakh of monetary support under any other Central or State 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% at the time of application to the incubator for the scheme, as per Companies Act, 2013 and SEBI (ICDR) Regulations, 2018.
- A startup applicant can avail seed support in the form of grant and debt/convertible debentures each once as per the guidelines of the scheme.
Eligibility Criteria for Incubators
- The incubator must be a legal entity:
– A society registered under the Societies Registration Act 1860, or
– A Trust registered under the Indian Trusts Act 1882, or
– A Private Limited company registered under the Companies Act 1956 or the Companies Act 2013, or
– 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 incubatees using funding from any third-party private entity
- The incubator must have been assisted by the Central/State Government(s)
- In case the incubator has not been assisted by the Central or State Government(s):
– 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 - Any additional criteria as may be decided by the Experts Advisory Committee (EAC)
Frequently Asked Questions
What is Startup India Seed Fund Scheme?
Startup India Seed Fund Scheme (SISFS) provides financial assistance to startups for proof of concept, prototype development, product trials, market-entry, and commercialization. Eligible startups can apply for the scheme on the Startup India portal. The Seed Fund will be disbursed to selected startups through eligible incubators across India.
Who can apply to SISFS?
A startup, recognized by DPIIT, incorporated not more than 2 years ago at the time of application is invited to apply for the scheme. Detailed eligibility criteria can be found at https://seedfund.startupindia.gov.in/about.
To get DPIIT-recognized, please visit https://www.startupindia.gov.in/content/sih/en/startupgov/startup-recognition-page.html
How much seed funding can a startup receive under the scheme?
Seed Fund to an eligible startup by the incubator shall be disbursed as follows:
- Up to Rs. 20 Lakhs as grant for validation of Proof of Concept, or prototype development, or product trials. The grant shall be disbursed in milestone-based installments. These milestones can be related to development of prototype, product testing, building a product ready for market launch, etc.
- Up to Rs. 50 Lakhs of investment for market entry, commercialization, or scaling up through convertible debentures or debt or debt-linked instruments
- A startup applicant can avail seed support in the form of grant and debt/convertible debentures each once as per the guidelines of the scheme
Can I apply for the scheme as an individual entrepreneur, or do I need a team?
No, individual entrepreneurs are not eligible to apply for support under the scheme. Only DPIIT recognized startups can apply for the SISFS. To get DPIIT-recognized, please visit https://www.startupindia.gov.in/content/sih/en/startupgov/startup-recognition-page.html
Does the scheme support startups from specific sectors?
ISFS is a sector agnostic scheme, which means that startups from any sector can apply for the scheme. However, preference would be given to startups creating innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defense, space, railways, oil and gas, textiles, etc. This list of sectors is indicative and not exhaustive.
What is a DPIIT-recognized startup?
An entity shall be considered a “Startup” –
- If it’s incorporated as either Private Limited Company or Registered Partnership Firm or Limited Liability Partnership. A sole proprietorship or a public limited company is not eligible as startup
- If it is up to 10 years from the date of its incorporation/ registration
- If its turnover for any of the financial years has not exceeded INR 100 crore
- If it is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation
- Should not have been formed by splitting up or reconstruction of a business already in existence.
To get DPIIT-recognized, please visit
https://www.startupindia.gov.in/content/sih/en/startupgov/startup-recognition-page.html
What all can I use the seed fund for?
Seed fund shall strictly not be used by startups for creation of any facilities and shall be utilized for the purpose it has been granted for. A grant can be used for validation of Proof of Concept, or prototype development, or product trials. A debt/ convertible debenture can be used for Market entry, Commercialization, or Scaling up.
Who is going to review my application?
Application of each startup will be reviewed by an Incubator Seed Management Committee (ISMC) formed by the incubators you apply to. The committee will also be responsible for future assessment of the performance of the startup and disbursement of further tranches. Each ISMC constitutes of the following members:
- Nominee of Incubator (Chairman)
- A representative from the State Government’s Startup Nodal Team
- A representative of a Venture Capital Fund or Angel Network
- A domain expert from Industry
- A domain expert from academia
- Two successful Entrepreneurs
- Any other relevant Stakeholder
What are the parameters for evaluation of startup applicants?
| Criteria | Details |
| Is there a need for this Idea? | Market size, what market gap is it filling, does it solve a real-world problem? |
| Feasibility | Feasibility and reasonability of the technical claims, the methodology used/ to be used for PoC and validation, a roadmap for product development |
| Potential Impact | Customer demographic & the technology’s effect on these, national importance (if any) |
| Novelty | USP of the technology, associated IP |
| Team | Strength of the team, Technical and business expertise |
| Fund Utilization Plan | Roadmap of money utilization |
| Additional Parameters | Any additional parameters considered appropriate by the incubator |
| Presentation | Overall assessment |
What is the process of evaluation?
The startups shall be selected through an open, transparent and fair process, comprising, inter-alia:
- Startups submit their application on the Startup India portal and an email confirmation is shared with them. Applicants can apply for seed fund to any three incubators selected as disbursing partners for this scheme in order of their preference.
- All applications received will be shared online with respective incubators for further evaluation.
- For all incomplete applications, a prompt of resubmission will be sent to the startup.
- The incubators shall shortlist applicants as per eligibility criteria
- Eligible applications will be evaluated by Incubator Seed Management Committee (ISMC) using the following criteria:
- 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 application
- Selected startups shall receive seed funding under the respective incubator that selects them as beneficiaries as per their preference shared during application (for example, if incubators at Preference 1 and Preference 2 both select a startup, the funding shall be given by Preference 1 incubator. If Preference 1 incubator rejects and Preference 2 incubator selects, the funding shall be given by incubator at Preference 2, and so on.)
- All applicants will be able to track the progress of their application on the Startup India portal on a real-time basis
- Applicants who are rejected will also be notified through email
| Criteria | Details | Weightage (%) | |
| 1 | Is there a need for this 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, 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 incubator | v |
| 8 | Presentation | USP of the technology, associated IP | Overall assessment |
| 100% | |||
| Weightages for criteria (p, q, r, s, t, u, v, w) may be assigned by each incubator differently | |||
What is the eligibility criteria for incubators to apply for SISFS?
Any Indian incubator operational for at least two years (for Government-supported incubators) and for three years (for incubators non supported by Government) on the date of application can apply to the scheme. For detailed eligibility criteria, please visit https://seedfund.startupindia.gov.in/about
What is the quantum of funds offered by the scheme to a selected incubator?
A Grant of up to Rs. 5 (five) crore would be provided to a selected incubator in milestone-based three (or) more installments. The exact quantum of grant and instalments for each incubator will be decided by the Experts Advisory Committee (EAC) based on its evaluation.
Is there a Management Fee provisioned in the scheme for selected incubators?
Yes, a component of Management Fee @ 5% of Seed Fund grant to the incubator will be provisioned (i.e. if an incubator is granted Rs. 1 crore of Seed Fund, then by including management fee @ 5%, the total assistance would be Rs. 1.050 crore). The Management Fee will be utilized for administrative expenditure, selection and due diligence of startups, and monitoring of progress of beneficiary startups. The Management Fee provisioned for incubators shall not be used by the incubator for facility creation or any other administrative expenses. As Installments of the Grant are released to incubators, proportionate Management fee shall also be released with each installment.
What can the incubator use this Grant of up to Rs 5 Cr. for?
Incubators shall use the grant for disbursal of seed fund to eligible startups as follows:
- Up to Rs. 20 Lakhs as grant for validation of Proof of Concept, or prototype development, or product trials. The grant shall be disbursed in milestone-based installments. These milestones can be related to development of prototype, product testing, building a product ready for market launch, etc.
- Up to Rs. 50 Lakhs of investment for market entry, commercialization, or scaling up through convertible debentures or debt or debt-linked instruments
- Not more than 20% of the total grant to an incubator shall be given as grants to startups by incubator
- A startup applicant can avail seed support in the form of grant and debt/convertible debentures each once as per the guidelines of the scheme
Incubators shall not use the grant for facility creation or any other expenses. A component of Management Fee @ 5% of Seed Fund grant to the incubator will be provisioned (i.e. if an incubator is granted Rs. 1 crore of Seed Fund, then by including management fee @ 5%, the total assistance would be Rs. 1.050 crore). The Management Fee will be utilized for administrative expenditure, selection and due diligence of startups, and monitoring of progress of beneficiary startups. The Management Fee provisioned for incubators shall not be used by the incubator for facility creation or any other administrative expenses.
How much time does the incubator have to disburse the entire sanctioned fund to startups?
The grant should be utilized fully by the incubator within a period of three years from the date of receipt of the first installment of funds. If the Incubator has not utilized at least 50% of the total commitment within the first 2 years, then the Incubator will not be eligible for any further drawdowns. It will return all unutilized funds along with interest.
What is the ISMC?
Each of the 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. The composition of ISMC would be as follows:
- Nominee of Incubator (Chairman)
- Representative from State Government’s Startup Nodal Team
- Representative of a Venture Capital Fund or Angel Network
- A domain expert from Industry
- A domain expert from academia
- Two successful Entrepreneurs
- Any other relevant Stakeholder
The final composition and members of ISMC of each incubator shall be approved by EAC and will be a critical parameter in selection of incubators
