written by | May 3, 2022

Know All About Seed Funding for Startups

To help boost India's startup ecosystem and provide opportunities for new entrepreneurs to help grow their businesses, the Indian government has come up with the Startup India Seed Fund Scheme (SISFS). With this scheme that the government backs, entrepreneurs with innovative ideas can access financial assistance. For example, an initial investment to begin entering the world of business. 

The Department for Promotion of Industry and Internal Trade (DPIIT) has developed the Startup India Seed Fund Scheme (SISFS) with an estimated budget of ₹945 crores to provide financial support to emerging startups. Besides assisting with product testing and commercialisation, it will help with prototyping and market access.

Did You Know?

The fund amount offered to the startup under the Startup India Seed Fund Scheme is up to ₹50 lakhs. The incubators can apply under this scheme through the official portal.

Also Read: Best Business Ideas for Students in India

Startup India Seed Fund Scheme (SISFS)

The funds through venture capital and angel investors can be accessible for startups only after proof of concept has been presented. Banks also provide loans only to applicants with assets. It is crucial to provide seed funding for startups with innovative and powerful original ideas to conduct proof of concept tests. 

DPIIT has come up with SISFS (also known as Startup India Seed Fund Scheme) that will cost approximately ₹945 crores for the financial aid in startups for proof of concept, the trial of products, commercialisation, prototype development and market entry. The fund will help around 3600 entrepreneurs through 300 incubators over the next four years. This program does more than aid the young entrepreneurs of the present generation. Still, it creates an entrepreneurial ecosystem that makes turning an original idea into a profitable startup much easier.

What is Seed Funding?

"Seed Funding" is the initial stage of funding a new startup. Startups with a new idea find it very hard to get angel investors interested in investing in their company when they cannot demonstrate the viability and likelihood of success of their new concept. Contacting banks for a loan isn't an easy task if they do not have the necessary conditions to provide banks with security for the loan. Seed funding can help startups that can come up with an original idea but lack the funds to carry out proof of concept, product testing, or prototype development tests.

What is an Incubator?

Business incubators are institutions that work with startups. Also, they help entrepreneurs develop their businesses at the beginning of their development. They assist these startups with their financial and other needs to accelerate the growth of these new startups. Incubators may have multiple startups under their wing and work together to accelerate their development process. Technical facilities and guidance, the provision of initial growth, capital networks and links, co-working space, mentoring, lab facilities and advice are just a few examples of incubation assistance. Angel investors, economic development coalitions, government agencies, venture capitalists and others frequently seek them for financing.

Goals for Startup India Seed Fund Scheme

Starting a new business from scratch can be a difficult task. In India, startups mainly are hampered by the absence of funding during the proof of concepts phase. These points illustrate the purpose behind SISFS:

  • Providing adequate seed funding to startups plays the role of a multiplier effect by validating their business concepts, and it can lead to a rapid increase in job opportunities. The Startup India Seed Fund Scheme aims to turn India into a nation with active startup culture in its Tier II and III cities because entrepreneurs in smaller cities cannot access the necessary funding.
  • The SISFS can provide a capital amounting to as much as ₹5 crores to certified incubators selected by the selection committee. The incubators will be able to award grants with a maximum of ₹20 lakhs to help startups during their product development prototypes, trials, or in proving their idea.
  • The specific provisions in this scheme allow an investment of up to ₹50 lakhs to allow the business to commercialise, clearing the way to market entry or scaling up the business using loans linked to financial instruments or convertible debt.

Conditions for Eligibility of SISFS

The startups must satisfy the following eligibility requirements for grant money from the Startup India Seed Fund Scheme:

  • To fill out the application, the startup must be recognised by the DPIIT. Their registration with the DPIIT shouldn't be over two years.
  • Technology must be the primary driver behind the products, business model, primary service and distribution method to resolve the specific issues. The business concept must meet the criteria of services or products that have the potential for commercialisation while also addressing market demand by providing a possibility of expansion.
  • Any business looking to develop innovative solutions in waste management, water management, financial inclusion, food processing, social impact, education, biotechnology, agriculture, defence, healthcare, space, gas, railways, oil, and so on would get the top. 
  • The startups that have received financial aid or grants from the central or state governments up to a maximum of ₹10 lakhs cannot be eligible to apply for the scheme. 
  • The amount you grant under the SISFS does not provide a subsidised workspace or monetary rewards from competitions/grand challenges laboratory infrastructure, prototyping, monthly allocations and design services. The Companies Act, 2013 states that startups must include an Indian promoter with at least 51% of the shares. According to the scheme's guidelines, the seed assistance you get by this scheme can be accessible in convertible loans, debt debentures, etc.

The Process to Avail Startup India Seed Fund Scheme

The startups must comply with these steps to be eligible for this seed funding scheme:

  1. Begin by going to the Startup India Seed Fund Scheme's official site.
  2. Click the tab “Login” in the top right-hand corner on the home page.
  3. Click the “Create Account” option in the lower right corner of your pop-up windows. This takes you to the page for registration on the "Startup India" website.
  4. Then you will need to input the information related to the company, including name, mobile number and email ID. After that, you need to create a password and verify it. Then, select the option to register.
  5. Next, you can get the OTP directly from the registered phone number to the applicant. The OTP must be verified then, press the “Submit” button.
  6. Following this, you need to visit the official Startup India Seed Fund Scheme website and click the "Apply Now" option on the right-hand side of the home page.
  7. On the "For Startups” option, click the "Apply Now' option to sign in. You will need to enter the username and password you created during registration.
  8. You'll reach the application window. You must fill in all the necessary information, upload your documents and click the submit button. After that, the application processing takes place.

The incubators will disperse their seed fund once you determine the startup to be eligible as per the following guidelines:

  • You'll receive a grant between ₹20 lakhs to help develop the prototype, the product trails or conduct a demonstration of the concept. The money is payable in instalments after you reach the milestones.
  • Up to ₹50 lakhs is available to entrepreneurs for commercialisation or scaling-up supported by the debt-linked mechanism.
  • The seed money that startups receive cannot be used to construct facilities. It is compulsory to only use it for the purposes for which it works the best.
  • The incubator will conclude the tenure after he has ratified the loan, with a maximum period that is five years. A moratorium of 12 months may be provided to startups.
  • The sanctioned loans are not secured loans because startups are still in their early phase; hence promoters are not required to provide any guarantees.
  • Before releasing the first instalment (within 60 days from the date of application), the incubator enters into an agreement of legality with the company in question.
  • The money will be transferred to the account of the startup company.
  • Startups have to submit a usage certificate along with an interim progress report to be released for subsequent instalments.

Conclusion

Apart from the mentioned methods, it is also important to note that the government of India also helps startups get seed finance through the price incentive scheme and money challenges. The Indian government organises these workshops or contests in collaboration with sponsors worldwide.
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FAQs

Q: What are other words for seed money?

Ans:

Seed money is also called startup funds, venture capital, pump-priming funds and working capital.

Q: What is pre-seed funding?

Ans:

The first stage of funding for a brand new business is at such an early point that it's not usually included in the rounds of capitalisation. "Pre-seed" financing usually refers to when the founders of a company are starting their business off the ground.

Q: What is seed funding?

Ans:

In this most basic form, you can say that getting cash means seed funding (through any source) it'll assist in providing your business with a good startup. It can help when you want to make your business idea a reality. With the help of seed funding, you can prove that a business can gain profit if it has proper funding. You can launch a unique product or a lubricative idea or even pursue a hidden market for getting profit.

Q: Can incubators apply for seed funding for startups if rejected?

Ans:

Incubators can apply for the Startup India Seed Fund Scheme after 3 months of getting rejected.

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