How the Govt's Seed Fund Scheme Can Help Startup? Everything you should know!

With Prime Minister Modi's recent swearing-in for his third consecutive term on June 9, the startup ecosystem is optimistic about the new government's support. The Commerce and Industry Ministry is reportedly considering requesting additional funds for startups in the upcoming Budget, slated for announcement in July.

The Modi government has consistently prioritized the startup sector, launching several initiatives to bolster India's startup ecosystem and bring it on par with global counterparts. Notably, the "Startup India" initiative has been instrumental in fostering innovation and entrepreneurship across the country.

The Present, Past and Future of the Seed Fund Scheme

Introduced in April 2021, the Startup India Seed Fund Scheme (SISFS) began with a corpus of Rs 945 crore to provide financial assistance for proof of concept, prototype development, product trials, market entry, and commercialization. As the scheme is set to conclude in 2025, discussions are underway for a successor to continue offering critical seed funding through incubators nationwide.

In the Interim Budget for 2024-25, the government allocated Rs 175 crore to SISFS, a 9 percent increase from the previous year's Rs 160 crore. This incremental funding hints at the government's intentions to continue supporting early-stage startups. The scheme initially received Rs 100 crore in its first year, followed by Rs 140 crore and Rs 160 crore in subsequent years.

Role of the Expert Advisory Committee

The successful execution and monitoring of SISFS are overseen by an Expert Advisory Committee (EAC). This committee evaluates and selects incubators for fund allocation, ensuring that the resources are directed to the most promising startups.

Understanding the Startup India Seed Fund Scheme

The SISFS was established with the fundamental objective of bridging the gap between innovative ideas and essential financial support. With an allocation of Rs 945 Crore over four years, the scheme aims to empower around 3,600 entrepreneurs through 300 incubators, heralding a new era of innovation and enterprise in India.

What are the Objectives of SISFS?

SISFS aims to:

• Address the capital inadequacy faced by startups in the seed and 'Proof of Concept' stages.
• Provide necessary resources to translate innovative concepts into tangible solutions.
• Stimulate job creation and economic growth by fostering a dynamic startup ecosystem.

What are the Eligibility and Application Process for SISFS?

SISFS's success hinges on its rigorous yet inclusive eligibility criteria, ensuring that funds are allocated to deserving startups with scalable impact potential. Startups must meet the following criteria:

• Recognition by DPIIT and incorporation not exceeding two years at the time of application.
• A business idea with market fit, viable commercialization, and scalability.
• Utilization of technology to address issues across diverse sectors such as social impact, healthcare, energy, and education.
• Limited financial assistance from other government schemes.
• Majority shareholding by Indian promoters.

Startups that meet these criteria can access seed support in the form of grants and debt/convertible debentures, facilitating transformative growth and development.

What is the Selection Process for SISFS?

The EAC, comprising seasoned experts and industry veterans, is tasked with evaluating and selecting incubators for seed fund allocation. They monitor progress and facilitate the realization of SISFS's objectives.

Funding Structure

Eligible startups can receive:

• Grant Funding: Up to Rs. 20 Lakhs for proof of concept validation, prototype development, or product trials. These grants are disbursed in milestone-based instalments.
• Investment Funding: Up to Rs. 50 Lakhs to facilitate market entry, commercialization, or scaling up. This support can come in the form of convertible debentures, debt, or debt-linked instruments.

As India moves towards a future driven by innovation and entrepreneurship, initiatives like SISFS are crucial catalysts for transformative change. By providing startups with the necessary resources, SISFS not only nurtures businesses but also shapes a brighter, more innovative tomorrow. This scheme is poised to unlock the boundless potential of India's startup ecosystem, fostering a new generation of entrepreneurs and innovators.

Modi 3.0's Agenda Beyond SISFS

Meanwhile, the early-stage capital availability remains a critical factor for entrepreneurs. The initial funding stages often determine the success or failure of startups with promising ideas. India boasts over 1.17 lakh government-registered startups, which have created more than 12.42 lakh direct jobs, benefiting from various tax incentives and government support.

Policy for Deep Tech Startups

As already in the pipeline, the newly sworn-in government might also propose a dedicated policy for deep tech startups. These ventures, grounded in advanced scientific and technological innovations, hold the potential to address significant societal challenges. The government's previous Startup India initiative, launched in January 2016, has laid a solid foundation, and continued support for deep tech can further enhance India's innovation landscape.

What The Startup Industry Expects from Modi 3.0?

Ahead of the new government taking office, the startup industry has highlighted several key areas needing attention. These include clearer regulations, streamlined processes for relocating headquarters to India or reverse flipping, and a simplified legal and enforcement framework. Founders of startups relocating from the US or Singapore have specifically requested assistance to expedite these transitions, currently taking over 12 months.

In the fintech sector, there is a strong call for a tiered Merchant Discount Rate (MDR) system for UPI transactions to ensure financial viability. 

Startup founders and CEOs emphasize the need for continuous support to expand opportunities in both B2C and B2B sectors, and in deep tech areas like AI and spacetech. Edtech founders seek more government backing to penetrate tier II and III cities, while climatetech venture capitalists look forward to policies promoting green transitions and net-zero commitments.

Vision for the Next Five Years

The startup community endorses the government’s role as a facilitator and policy-maker in the tech space, urging for continuity in initiatives. They advocate for India to become a product nation, increase R&D spending, and develop AI infrastructure, viewing the next five years as crucial for achieving these goals.

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