Start-up India Seed Fund Scheme (SISFS) – Scheme & its Objectives, Eligibility, Process, Meaning, Documents Required, Procedure

Overview

Basically, a start-up is a young company founded by either one or more groups of entrepreneurs who bring an innovative unique product or service to offer to their consumers in the market. By its nature, most start-ups run on tight budgets and high costs of production making it harder for businesses to survive longer.

Easier access to capital is crucial for entrepreneurs at the early stages of the growth of an enterprise. However, as much as 90% of the start-ups tend to fail within five years of their existence due to insufficiency of funds, while some other ideas may not even take off due to failure to gather funding resources. Since financial institutions offer funds to only asset-backed applicants, angel investors & VC firms may not consider investing until the start-up has a proof of concept available. Thus, there was a need to have a strong system in place which could support unique innovative ideas to conduct proof of concept trials.

Therefore to encourage entrepreneurship &extend financial support to the Startups in the initial stages, the Government of India announced Startup India Seed Fund Scheme (SISFS) that was announced on 21^st January 2021.

SISFS Scheme & its Objectives

Under the scheme, the Government created a corpus fund of Rs. Rs.945 crores divided over 4 years, starting FY2021-22 till the year 2025.Within such duration, the Government has set a target to offer seed funding to 3600 eligible start-ups which shall be disbursed by 300 eligible incubators selected by the Government. This seed funding will enable Startups to elevate to a level where they could become eligible to seek loans from commercial banks/ financial institutions or raise investments from angel investors or venture capitalists.

For years, the Indian Start-up Ecosystem could not take off due to the lack of access to financial resources in the initial stages of development. And, since financial institutions & investors are not interested to invest in a start-up unless there was proof of development for the business, entrepreneurs had nowhere to go.

To resolve this issue, the SISFS scheme was launched to offer financial assistance through seed funding to such promising start-ups which could have a multiplier impact on the business ideas of other start-ups leading to wealth & employment generation in the country.

The funds offered in the scheme are either in nature of grants or as convertible debentures. These funds could be used for purposes such as the development of the proof of concept, prototype development, product trials, market entry, and commercialization. Therefore, financial assistance provided under this scheme will allow these firms to progress to the point where they might seek funding from angel investors or venture capitalists, as well as acquire loans from commercial banks or financial institutions.

The SISFS scheme is available on a PAN India basis to all start-ups registered in India. It is a sector-agnostic scheme, which means that Startups is not focused on start-ups from any particular sector, thus start-ups working in any sector could apply for the scheme.

However, preference would be given to Startups working in innovative 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.

How much seed funding is permissible for each eligible start-up under this scheme?

Any startup applicant can avail of seed support financial assistance either in form of grants or debt/convertible debentures each once as per the provisions of the scheme. Once approved the grant shall be disbursed by an authorized incubator based on certain milestone-based installments. However, the seed funds provided under the scheme shall not be applied for any other purpose as provided in the list.

Any eligible start-up could seek funds as per the limits prescribed under the Seed Fund scheme disbursed by the incubator as provided below-

How does the SISFS Scheme work?

Under the SISFS scheme, the Department for Promotion of Industry and Internal Trade (DPIIT) under the Union Ministry of Commerce has set up an Experts Advisory Committee (EAC) which has been responsible for the execution & administration of the SISFS scheme.

The Expert Advisory committee shall undertake the process of evaluation & approval of the incubators who will, in turn, allow seed funding, monitor their progress, and take necessary steps to ensure efficient utilization of funds allocated towards the fulfillment of objectives of the SISFS.

After the incubators are selected, the EAC will provide grant assistance, and provides a The EAC decides the exact installments and quantum of grants for each incubator based on its evaluation.

Now, these incubators will together constitute a committee known as the Incubator Seed Management Committee (ISMC) which comprises experts who may shortlist startup applicants based on their evaluation for a presentation before the ISMC. After carefully evaluating applicants based on their presentations and submissions, the Committee will decide on the Startups for the seed fund within 45 days of receiving applications.

Thus, the start-ups selected by the committee will be notified and provided funds under the respective incubator that selects them as beneficiaries according to their preferences shared in the applications.

Eligibility Criteria for Start-ups under SISFS Scheme

Provided below are the eligibility criteria to be fulfilled by a start-up under the Startup India Seed Fund Scheme-

• Each applicant start-up must be recognized as a ‘Start-up’ by the DPIIT under the start-up India program.
• Such a start-up shall be in operation for less than two years at the time of making an application for seed funding.
• The business idea for the concerned product/service must be relevant to the market, Commercially viable, and should have the potential to scale.
• In each such start-up company, the Indian promoters must hold at least 51 percent of the company at the time of application to the incubator for the program following the provisions of the Companies Act of 2013 and the SEBI (ICDR) Regulations of 2018.
• Each start-up shall only be eligible for a grant of Seed funding for only once and not thereafter.
• To resolve its target problem, the start-up must be using technology in its primary product or service, business model, distribution model, or approach.
• The applicant start-up should not have received a sum above Rs. 10 Lakh in financial assistance under any other Central or State Government scheme. However, if the start-up has won prize money from competitions and grand challenges, or under subsidized working space, a monthly allowance for the entrepreneur, access to labs, and access to a prototyping facility shall not be included in the above-mentioned limit.
• 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.

Process of Making Application for Seed Funding under SISFS

Following is the process of registration and application process for start-ups seeking funding from incubators under the SISFS-

• Access the SISFS portal by logging in to https://seedfund.startupindia.gov.in/
• Once you open the page click the ‘Login’ button on the upper right-hand side of the homepage and click at the bottom of the tab, select the ‘Create an Account option.
• Next, the ‘Startup India website’s registration page will open.
• Create a username & password by filling in basic details such as the applicant, contact details such as email address & phone number, and the desired password, and then finally click Register.
• After this, the applicant will receive an OTP on his/her registered phone number. Enter OTP and then click the ‘Submit’ button after entering the OTP.
• Now, again go to the homepage of the SISFS portal and click Apply Now button available on the right side of the homepage of the official Startup India Seed Fund Scheme website.
• Under the ‘For Start-ups’ option, click the ‘Apply Now button and log in with the username and password created earlier on the Startup India website.
• Now, the applicant will be able to view the application form for seed funding which is needed to be filed, and click the ‘Submit’ button after uploading the necessary documents & attachments.
• After which, the application will be submitted for selection of the startup for seed funding under the SISFS scheme, and the applicant will be notified of the acceptance or rejection accordingly.

Meaning of Incubators under SISFS

For those unknown, a startup incubator is a collaborative program that is designed in a manner to afford assistance to the start-ups to succeed. These incubators help entrepreneurs to resolve the commonly associated problems that come into their day-to-day lives in business operations helping businesses entrepreneurs grow their businesses.

Provided below are some of the most common services provided by business incubators to start-ups-

• Helping with the business basics and offering networking opportunities
• Offering Marketing assistance
• Accounting/financial management assistance
• Access to finances through bank loans/loan funds and guarantee programs
• Offering help with the presentation skills
• Helping to build connections with strategic partners/ higher education resources
• Connections to Access to angel investors or venture capital
• Allowing access to Comprehensive business training programs
• Identification of the Management team
• Assistance related to Technology commercialization
• Intellectual property management and legal counsel

Accordingly, under the SISFS scheme, the responsibility for the implementation & execution of the scheme has been provided to incubators. Under this Start-up India Seed Fund Scheme 2021, the Government of India will select 300 incubators to facilitate seed funding & guidance to about 3600 start-ups as granted by the Government. The Government will be allocated funds to incubators and these incubators will in turn in charge of disbursing the monies to businesses. The incubators would be eligible to offer financial help up to Rs 50 lakh would be provided to entrepreneurs at an early stage through incubators under this scheme.

Therefore, any applicant start-up may make an application under the SISFS scheme for up to three incubators directly from the portal after making a selection of incubators of their choice.

Eligibility Criteria for Incubators under Scheme

• Incubator must be a legal entity i.e. private limited company/ Society/ Trust/ or a statutory Body created under any Act of Legislature.
• On the date of application to the scheme, the incubator should be operating for at least two years.
• On the date of application, the incubator must have at least five startups in physical incubation.
• Incubators should have seating facilities of at least 25 individuals.
• The incubator must have a full-time Chief Executive Officer with experience in business development and entrepreneurship, as well as a capable team holding knowledge and experience to mentor Startups in testing and validating their ideas, as well as with other fields such as finance, legal, and human resources functions.
• The incubator should not disburse seed money to incubate using funds from any private entity, but only from governments at the federal and state levels that must have aided the incubator (s).
• In the case where the incubator has not been supported by any State/Union Government/s-
  • Incubator shall be operating for at least three years;
  • shall have at least ten start-ups undergoing physical incubation as of the date of application.
  • Must submit audit reports for at least two years;
• Any other criteria that the Experts Advisory Committee deems necessary (EAC).

 Documents Required to Apply for SISFS Scheme

• Copy of Aadhaar card
• GST identification number
• Bank account details
• Rent Agreement/Lease Agreement
• Detailed report of the project
• Passport size photographs
• Details of communication

Application Procedure for Incubators under SISFS

Following is the process of registration and application process for start-ups seeking funding from incubators under the SISFS-

• Access the SISFS portal by logging in to https://seedfund.startupindia.gov.in/
• Once you open the page click the ‘Login’ button on the upper right-hand side of the homepage and click at the bottom of the tab, select the ‘Create an Account option.
• Next, the ‘Startup India website’s registration page will open.
• Create a username & password by filling in basic details such as the applicant, contact details such as email address & phone number, and the desired password, and then finally click Register.
• After this, the applicant will receive an OTP on his/her registered phone number. Enter OTP and then click the ‘Submit’ button after entering the OTP.
• Now, again go to the homepage of the SISFS portal and click the ‘Apply Now button available on the homepage and the ”For Incubators’ option available on the portal.
• In the next step, create an applicant profile by selecting the country and typing the letters in the input box, and selecting the ‘Next’ option. An application form will appear on the main page.
• Fill application page while filling in details such as basic information, incubator support, incubator team information, fund requirement information, etc. Once information is filled click the ‘Save Profile button.
• The applicant profile will be sent to a moderator for approval. After receipt of approval, log in to the SISFS portal again and click ‘Apply now to avail seed fund scheme.
• Enter other details in the application form including basic details, incubator support detail, incubator team detail, fund requirement details, etc., and upload documents and finally click ‘Submit’.
• Finally click the ‘Submit’ button, and the incubator will have applied for the SISFS.

Post -Compliances after Allotments of Seed Funding For Startups

Once an incubator allots funds to any start-up applicant, it must track the following information case for each beneficiary start-up in the form of periodical reports to their concerned incubators-

• Proof of Concept & Prototype Development
• Progress of Product Development
• Field Trials progresses
• Turnover of Startup
• Progress of Market Launch
• Quantum of investments raised, if any through banks/Financial institutions/ Angel investors or VC Firms
• Total Jobs Created By Startup
• Any other appropriate parameter

Further, every eligible startup should submit the utilization certificate and interim progress update to initiate the release of subsequent installment of the grant, a copy of which will be forwarded to Startup India in real-time data and EAC on a quarterly every year.

Things to be noted

• No incubator shall give more than 20% of its total grant as grants to Startups.
• The funds allotted to the eligible start-ups must be offered at an interest rate above the prevailing repo rate for Startups supported through debt/convertible debentures or debt-linked instruments.
• It shall be compulsory for the incubator to offer funds for a fixed tenure of not more than five years with a moratorium of up to 12 months that can be provided for the start-ups.
• The loans sanctioned by the incubator will be unsecured due to the early stage of the start-ups. Thus, there is no requirement for any guarantee from any promoter or any third party.
• Every start-up whose application for a seed fund has been approved will receive its first installment within 60 days from receipt of the application from the startup.