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The simple availability of financing is a critical issue for entrepreneurs looking to expand their businesses. Many business concepts never get off the ground due to a lack of funding. Seed funding provided to such promising cases might have a multiplier effect, resulting in the validation of many company ideas and the creation of jobs. To address this issue, the Indian government has established the Startup India Seed Fund Scheme. The government will provide financial aid to entrepreneurs through this program.

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What is The Startup India Seed Fund Scheme?

The Startup India Seed Fund Scheme is led by the Department for Promotion of Industry and Internal Trade (DPIIT), and it provides financial help to companies for prototype development, proof of concept, market entry, product trials, and commercialisation.

Startups can only receive funding from venture capital firms and angel investors after demonstrating their proof of concept. Banks, too, provide loans to asset-backed firms. As a result, it is critical to provide initial money to Indian businesses with new ideas in order to conduct proof of concept testing.

The SISFS provides seed funding to qualifying entrepreneurs for proof of concept development through incubators across India. In the following four years, from 2021 to 2025, it will support around 3,600 entrepreneurs through 300 incubators. The seed fund will allow entrepreneurs to apply for loans from commercial banks or financial institutions, as well as raise funds from angel investors and venture capitalists.

Objectives of SISFS

The Startup India Seed Fund Scheme (SISFS) intends to help entrepreneurs with proof of concept, prototype development, product trials, market entry, and commercialisation. This would allow these firms to progress to the point where they might seek funding from angel investors or venture capitalists, as well as obtain loans from commercial banks or financial institutions. 

The Seed Fund will be distributed to qualifying entrepreneurs through incubators throughout India. Financial help of up to Rs 50 lakh would be provided to entrepreneurs at an early stage through incubators under this scheme. The government will allocate cash to incubators, and the incubators would be in charge of disbursing the monies to businesses.

Eligibility For a Startup Under Startup India Seed Fund Scheme

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

  1. A startup that has been recognized by DPIIT and has been in operation for less than two years at the time of application must have a business idea for a product or service that has market fit, is commercially viable, and has the potential to scale.
  2. To solve the problem being targeted, a startup should use technology in its primary product or service, business model, distribution model, or approach.
  3. Startups developing innovative solutions in areas 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, and others would be given priority.
  4. Under any other Central or State Government scheme, a startup should not have received more than Rs 10 lakh in financial assistance. Prize money from competitions and grand challenges, subsidised working space, a monthly allowance for the entrepreneur, access to labs, and access to a prototyping facility are not included.
  5. According to the Companies Act of 2013 and the SEBI (ICDR) Regulations of 2018, Indian promoters must own at least 51 percent of the company at the time of application to the incubator for the program.
  6. Seed funding will not be given to a company more than once.

Application Procedure For Startups Under SISFS

The following is the application procedure for entrepreneurs seeking seed funding from incubators under the SISFS:

  • Visit the Official Website of the SISFS.
  • On the upper right-hand side of the homepage, click the ‘Login’ button.
  • The ‘Login’ tab will appear on the screen. At the bottom of the tab, select the ‘Create an Account’ option.
  • The ‘Startup India’ website’s registration page will open.
  • Fill in your name, email address, phone number, and password, then click the ‘Register’ button.
  • The applicants’ registered mobile numbers will receive an OTP. Click the ‘Submit’ button after entering the OTP.
  • On the right-hand side of the homepage, click the ‘Apply Now’ button to get to the official Startup India Seed Fund Scheme website.
  • Under the ‘For Startups’ option, click the ‘Apply Now’ button and log in with the username and password you created on the Startup India website.
  • The application form will appear on the screen. Fill out the application form completely, upload your documents, and click the ‘Submit’ button.
  • The application will be submitted for selection of the startup for seed funding under the SISFS scheme once you click the ‘Submit’ button.

Eligibility Criteria For Incubators Under SISFS

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

  • 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
    • A statutory body created through an Act of legislature
  • On the date of application to the scheme, the incubator should have been operating for at least two years.
  • At least 25 people must be able to sit in the incubator.
  • On the date of application, the incubator must have at least 5 startups in physical incubation. The incubator must have a full-time Chief Executive Officer with experience in business development and entrepreneurship, as well as a capable team to mentor startups in testing and validating ideas, as well as finance, legal, and human resources functions.
  • The incubator should not disburse seed money to incubates using funds from any private entity.
  • Governments at the federal and state levels must have aided the incubator (s)
  • Any other criteria that the Experts Advisory Committee deems necessary (EAC).
  • In case the incubator has not been assisted by Central or State Government(s):
    •  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

Application Procedure For Incubators Under SISFS

The following is the procedure for incubators to apply for the SISFS:

  1. Visit the official website of the Startup India Seed Fund Scheme (SISFS).
  2. On the upper right-hand side of the homepage, click the ‘Login’ button.
  3. The ‘Login’ tab will appear on the screen. At the bottom of the tab, select the ‘Create an Account’ option.
  4. The ‘Startup India’ website’s registration page will open.
  5. Fill in your name, email address, phone number, and password, then click the ‘Register’ button.
  6. The applicant’s registered mobile number will receive an OTP. Click the ‘Submit’ button after entering the OTP.
  7. On the right-hand side of the homepage, click the ‘Apply Now’ button to get to the official Startup India Seed Fund Scheme website.
  8. Under the ‘For Incubators’ option, click the ‘Apply Now’ button and log in with the username and password you created on the Startup India website.
  9. Select the country, type in the letters in the input box, and then select the ‘Next’ option.
  10. The application form will appear on the screen. Fill out the application form completely and click the ‘Save Profile’ button.
  11. For approval, the profile will be emailed to a moderator. Log on to the Startup India Seed Fund Scheme website once your application has been approved.
  12. Under the seed money plan, click ‘Apply Now.’
  13. Fill out the application form with information such as basic information, incubator support, incubator team information, fund requirement information, and so on.
  14. After you’ve uploaded your papers, click the ‘Submit’ button.

Guidelines for Assistance to Incubators

  • Seed Fund to an eligible startup by the incubator shall be disbursed as follows
    • Grant of up to Rs. 20 lakhs for proof of concept, prototype development, or product trials validation. The award will be paid out in stages dependent on milestones. These milestones can be related to prototype development, product testing, and preparing a product for market launch, among other things.
    • Through convertible debentures, debt, or debt-linked instruments, up to Rs. 50 lakhs of investment can be made for market entry, commercialisation, or scaling up.
    • Startups must not use seed funds to build any facilities; instead, they must use them for the reason for
      which they were provided.
  • A maximum of 20% of an incubator’s total grant must be distributed to start-ups. DPIIT would also take into account and alter the rate of interest (as specified under GFR) on unutilized funds available with the incubator at the time of the next release.
  • Funds shall be granted at a rate of interest not exceeding the prevailing repo rate for startups financed by convertible debentures, debt, or debtlinked instruments. The term of the loan should be determined by the incubator when the loan is approved, and it should not exceed 60 months (5 years).
  • For the startups, a 12-month ban could be imposed. Because of the businesses’ early stage, this will be unsecured, with no assurance from the promoter or a third party necessary.
  • Before the first tranche is released, the incubator must sign a legal agreement with the shortlisted startups. The incubators must ensure that the agreement contains all of the relevant terms and circumstances, including milestones, relating to the Seed Fund.
  • Following that, as per the agreement between the startup and the incubator, subsequent distribution would be related to the completion of previously established milestones.
  • The funds will be deposited into the startup’s bank accounts.
  • The first tranche of a grant to any selected startup must be released within 60 days after receipt of the startup’s application. To begin the disbursement of the next payment of grant funds, the startup must submit an intermediate progress update and a utilisation certificate.
  • At the conclusion of the project, the startup must present a final report as well as an audited utilisation certificate. In the case of a failed endeavor, the entrepreneur will document his or her lessons learned and the reasons for failure in a report, which will be submitted along with the fund utilisation certificate.
  • For any procedure of selection, distribution, incubation, or monitoring, the incubator or any of its staff members shall not collect any fee in cash or in kind from applicants or beneficiaries under the scheme.
  • For the scheme, a grievance cell will be established at DPIIT to resolve complaints raised by applicants, such as delayed application evaluations, delayed incubator disbursements, and so on.

Experts Advisory Committee (EAC)

DPIIT will form an Experts Advisory Committee (EAC), which would be in charge of the overall execution and supervision of the Startup India Seed Fund Scheme. The EAC will assess and choose incubators for Seed Fund allotment, monitor progress, and take all required steps to ensure that funds are used efficiently to achieve the goals of the Startup India Seed Fund Scheme.

The Experts Advisory Committee (EAC) will comprise of the following members:

  • Chairman, an individual of eminence
  • Representative of Department of Biotechnology (DBT)
  • Representative of Department of Science & Technology (DST)
  • Financial Advisor, DPIIT or his representative
  • Representative of Ministry of Electronics and Information Technology (MeiTY)
  • Representative of Indian Council of Agricultural Research (ICAR)
  • Additional Secretary/ Joint Secretary/ Director/ Deputy Secretary, DPIIT (Convener)
  • Representative of NITI Aayog
  • At least three expert members nominated by Secretary, DPIIT from the startup ecosystem, investors, experts in the domain of R&D, technology development and commercialisation, entrepreneurship and other relevant domains.

With the Incubators chosen under the scheme, the Experts Advisory Committee (EAC) will monitor the scheme’s development.

The Incubators will provide reports to the EAC as requested for objective review.

In the event that a selected incubator performs poorly, EAC may decide to stop providing seed funding to that incubator and take further action as necessary.

If the selected incubator utilizes the grant for purposes other than those for which it was awarded, appropriate legal action will be taken against it.

Process Post Funding For Startups

Each incubator must track the following for each beneficiary startup. Every beneficiary startup must present the following reports to their incubators periodically.

  1. proof of concept
  2. prototype development
  3. Progress of product development
  4. Progress of field trials
  5. Turnover of startup
  6. Progress of market launch
  7. Quantum of loan, angel or VC funding raised
  8. Jobs created by startup
  9. Any other appropriate parameter

The incubator will offer the aforesaid data to Startup India in real time via their web dashboards, and will submit it to the EAC on a quarterly basis. Each Startup’s return on investment must also be reported by the incubator. A suitable matrix could be created for this purpose.

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