Starting a new business can be an uphill task, especially when it comes to securing financial backing. In India, the Ministry of Commerce and Industry has taken steps to address this challenge by approving Rs. 477.25 crore under the Startup India Seed Fund Scheme (SISFS). This initiative is part of a broader endeavor encapsulated in the Startup India Initiative.
The Startup India Initiative
Launched by the Prime Minister in January 2016, the Startup India Initiative aspires to create a vibrant ecosystem for startups in India. The initiative fosters innovation and creates opportunities for emerging entrepreneurs. It includes an Action Plan of 19 Action Points designed to pave the way for a supportive ecosystem for Indian startups. The key schemes under the initiative include the Fund of Funds for Startups (FFS), SISFS, and Credit Guarantee Scheme for Startups (CGSS).
Understanding the Startup India Seed Fund Scheme (SISFS)
Announced at the Startup India International Summit in January 2021, SISFS aims at offering financial support to startups. With an approved outlay of Rs. 945 Crore for four years starting from 2021-22, the scheme will offer funds for Proof of Concept, prototype development, product trials, market entry, and commercialization.
Execution and Monitoring of SISFS
An Experts Advisory Committee (EAC) formed by the Department for Promotion of Industry and Internal Trade (DPIIT) will oversee the execution and monitoring of SISFS. The EAC will assess and select incubators for fund allocation, monitor progress, and ensure efficient fund utilization towards fulfilling the objectives of the scheme.
Eligibility Criteria for SISFS
Startups recognized by the DPIIT and incorporated no more than two years ago are eligible to apply for funding under the SISFS. However, they should not have received more than Rs. 10 lakhs of monetary help under any other government scheme. Startups offering innovative solutions in sectors such as social impact, waste management, water management, and more are given preference.
Grants and Support from SISFS
An estimated 3,600 entrepreneurs will be supported through 300 incubators in the next four years. Grants of up to Rs. 5 crores will be provided to selected incubators. They can provide grants up to Rs. 20 lakhs to startups for concept validation, prototype development, or product trials. Further, investments up to Rs. 50 lakhs will be provided to startups for market entry, commercialization, or scaling up.
The Need for Seed Fund
Seed funding is vital during the early stages of a startup. Currently, Indian startups face a shortage of capital during the seed and ‘Proof of Concept’ development stage. Even promising business ideas often fail due to lack of capital for proof of concept, prototype development, and so on. Seed funding can propel startups, leading to job creation and economic growth.
Other Initiatives Aiding Startups
Additional initiatives complementing the SISFS include Startup Innovation Challenges, National Startup Awards, and Ranking of States on Support to Startup Ecosystems. The SCO Startup Forum and ‘Prarambh’ Summit also help foster a dynamic startup ecosystem.
Understanding Venture Capital
Venture capital is essentially the funding provided to emerging or growing businesses. These funds usually come from venture capital firms that construct high-risk financial portfolios. The providers of this funding, or venture capitalists, give money to startups in exchange for equity.
