Startup India Seed Fund Scheme - Objectives, Features, Working, Eligibility, Challenges & Importance

The Startup India Seed Fund Scheme (SISFS) is launched to build a robust and sustainable Startup ecosystem across the country by providing seed funding, providing support in the implementation of ideas, and nurturing innovation. The main objective of the scheme is to provide financial assistance through seed funding to startups. Startup India seed fund scheme was launched by the Ministry of Commerce & Industry’sDepartment for Promotion of Industry and Internal Trade (DPIIT).

Topics related to the theme of important government schemes are often seen in the news. The Startup India Seed Fund Scheme is very important for the UPSC Civil services exam under the syllabus of the General Studies (GS- 2 and 3) paper. This article on Startup India Seed Fund Scheme will help you to prepare for the Prelims and the Mains stage of the UPSC IAS exam.

This article on Testbook will discuss in a detailed way about the launching date, objective, nodal ministry, and significance of the Startup India Seed Fund Scheme. We will also learn about the latest news, seed fund, startup India initiative, important facts, and benefits related to the scheme. 

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Fig. 1 Startup India Seed Fund Scheme

Image Source – SISFS

Latest News related to Startup India Seed Fund Scheme

• Credit Guarantee Scheme for Startups (CGSS)
  • In October 2022, the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce, notified a new credit guarantee scheme for startups to grant collateral-free loans.
  • This scheme will help in mobilizing domestic capital for Indian startups by providing credit guarantees to the investors.
  • There are two types of guarantee cover under this scheme:

• Transaction-based guarantee cover
• Umbrella-based guarantee cover

• Both types of guarantee will provide a cover of up to Rs.10 crore per case.
• The National Credit Guarantee Trustee Company Limited (NCGTC) will manage the scheme.
• Increase in Budget allocation to Startup India Seed Fund Scheme – In Budget 2022; the central government has allocated Rs 283.5 crore for this Scheme. It is higher than the Revised Estimate of about Rs 100 crore.

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What is Startup India Seed Fund Scheme?

The Startup India Seed Fund Scheme (SISFS) was initially announced by Prime Minister Mr. Narendra Modi in January 2021 during the Grand Plenary address of ‘Prarambh: Startup India International Summit’. This initiative commemorated the fifth anniversary of the ambitious Startup India program, which we will also discuss later in this article. Minister of Commerce & Industry, Piyush Goyal, officially launched the scheme on April 19, 2021, in New Delhi. The primary goal of this funding scheme is to assist startups in areas such as proof of concept, prototype development, product trials, market entry, and commercialization by providing financial support.

What is Seed Funding?

Seed fund or Seed money is the funding provided to a startup or business at the earliest stage of its life cycle. Seed funding is usually provided during the idea generation of the startup or during the plan.

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Objectives of SISFS

• To provide financial help to startups at a crucial stage in their development.
• To help startups to validate their ideas and develop prototypes.
• To provide support for market entry and commercialization.

Features of SISFS

• The scheme provides funding of up to INR 10 lakhs to eligible startups.
• The funding is provided through incubators that are registered with the Department of Industrial Policy and Promotion (DIPP).
• The startups must be incorporated in India and must have been founded not more than two years ago.
• The startups must have a business idea with a market fit, viable commercialization, and scope of scaling.

Working on Startup India Seed Fund Scheme

Let us understand the operation of the Startup India Seed Fund Scheme:

• Under this scheme, eligible startups can apply for the seed fund through the Startup India portal.
• Startups are also given the choice of applying for incubation from incubators.
• The Experts Advisory Committee(EAC) will select eligible incubators and provide them grants of up to Rs 5 Crores each.
• The complete operation of this scheme is online. There is no physical component involved.
• Among all the eligible startups, the incubator will select a startup to provide assistance under this scheme.
• There are no fees charged by the incubator for the assistance.
• The incubator Seed Management Committee (ISMC) reviews the applications based on the Feasibility, Potential Impact, Novelty, and Fund Utilization Plan of the startup within 45 days of application.
• Selected incubators will provide startups –
  • Seed fund up to Rs 20 lakhs for validation of Proof of Concept, prototype development, and product trials.
  • Seed funds up to Rs 50 lakhs for market entry, commercialization, and scaling up through convertible debentures or debt-linked instruments.
• The first installment of the seed fund of the selected startup is granted within 60 days of application in the company account of the startup.

Fig.2 Operating Procedure of Startup India Seed Fund Scheme

Image Source: Government of India

Eligibility for Startup India Seed Fund Scheme

Department for Promotion of Industry and Internal Trade (DPIIT) recognizes the startup for the funding scheme based on the following conditions –

• Startup incorporated up to 2 years ago at the time of application under this scheme.
• Startup which has not received more than Rs.10 lakh of monetary grant under any other scheme. This excludes cash prizes won from competitions and grand challenges.
• Startup in which shareholding by Indian promoters should be at least 51% at the time of application.
• The startup should use technology in its core product or service.
• The preference will be given to startups in waste & water management, financial inclusion, healthcare, education, agriculture, food processing, biotechnology, energy, defense, space, railways, oil and gas, and textiles.

Challenges of Seed-Stage Startups

Early-stage startups encounter significant challenges that can be grouped into the following categories:

• Product/Service: Startups are often at the idea validation stage with minimal brand recognition. Access to funding is needed to ensure the development of a Minimum Viable Product (MVP) necessary for field trials and market launch.
• Customers: These startups must establish themselves in terms of market acquisition, gaining market acceptance, and building customer trust to gain initial traction.
• Processes: Founders typically need more expertise to formalize and regularize core team culture. Recruiting the right human resources, including Key Managerial Personnel, poses a challenge.
• Business Model: Startups face hurdles in defining revenue streams, understanding unit economics, and creating accurate financial projections for the business.

Need for Startup India Seed Fund Scheme

Some of the fundamental reasons behind the need for the Startup India Seed Fund Scheme are the following:

• Capital inadequacy in the Indian Market – Capital inadequacy is the shortage of funds to meet the day-to-day regular operating activities of the business. The growth of the Indian startup ecosystem is hindered by a lack of capital during the seed and ‘Proof of Concept’ development stages.
• Seed funding boosts the new Idea – Many innovative startup ideas fail to get executed because they suffer from the availability of seed money, which is required at an early stage.
• Multiplier effect – When seed money is made available to startups with innovative ideas, it can have a multiplier effect in validating the business plans of numerous startups, resulting in job creation in the country.

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Startup India Seed Fund Scheme: Benefits

Startup India Seed Fund Scheme will have the following benefits –

• Strong startup ecosystem – This scheme will aid in developing a strong startup ecosystem in Tier 2 and 3 cities. More than 3,000 startups will benefit from this scheme.
• Incubation – Incubators are agencies that support entrepreneurs in the early stages of their business development. Under this scheme, startups will get incubators to help them.
• No shortage of funds – Under this scheme, grants up to Rs.50 Lakh will be provided in the initial stage of operation. Hence, the startups will not face a shortage of funds.
• Economic growth – The growth of the startup ecosystem in the country will help in job creation and Gross Domestic Product(GDP) growth. This will lead to realizing the potential of a $5 Trillion economy.

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Experts Advisory Committee (EAC) under SISFS

The Department for Promotion of Industry and Internal Trade (DPIIT) will form an Experts Advisory Committee (EAC) to execute and monitor the Startup India Seed Fund Scheme. The main agenda of the EAC will be to evaluate and select incubators for the allotment of Seed money. This EAC will also track progress and take necessary actions to utilize Seed funds efficiently.

The EAC consists of the following members –

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

Startup India Initiative

The Startup India Initiative is a flagship program of the Government of India. It was launched in 2016. The initiative aims to build a robust ecosystem for nurturing innovation and startups in India.

Objectives

The objectives of the Startup India Initiative are to:

• Build a robust ecosystem for innovation and startups in India.
• Promote economic growth and generate large-scale employment opportunities by nurturing startups.

Components

The Startup India Initiative has four main components:

• Simplification and Handholding: This component aims to reduce the regulatory burden on startups. It aims to provide them with handholding support.
• Funding Support and Incentives: This component provides funding support and incentives to startups.
• Industry-Academia Partnership and Incubation: This component promotes industry-academia partnerships and incubation for startups.
• Credit Guarantee Fund: This component provides a credit guarantee fund for startups.

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Other Government initiatives to boost Startup Ecosystem in India

• Ranking of States on Support to Startup Ecosystems – It is an annual ranking index released by DPIIT, Ministry of Commerce and Industry in 2018. It aims to bring competitiveness among states and Union Territories in the startup domain. It classifies states based on 5 categories: Best Performers, Top Performers, Leaders, Aspiring Leaders, and Emerging Start-up Ecosystems.
• Atal Innovation Mission (AIM) – It is a flagship programme of NITI Aayog. AIM aims to promote a culture of innovation and entrepreneurship in India from a young age.
• Startup Innovation Challenges – It is an excellent opportunity for any startup to capitalize on its networking and fundraising efforts. Some challenges are the Innovation Challenge for developing Machine Aided Translation Systems (IC-MATS), Innovations for Defence Excellence(iDEX), etc.
• ‘Prarambh’ Summit – DPIIT, Ministry of Commerce and Industry organize it. This summit offers a platform for startups and young minds worldwide to share fresh ideas, innovate, and invent.
• Start-up India Digital Platform - is the world’s largest virtual incubator platform, with over 3,00,000 registered start-ups and aspiring entrepreneurs.
• National Startup Awards – DPIIT, Ministry of Commerce & Industry designed and formulated these annual awards. These awards consist of a cash prize of Rs.5 lakh to startup founders and Rs.15 lakh to Incubators and accelerators.
• National Initiative for Developing and Harnessing Innovations (NIDHI) - is an umbrella programme launched by the Department of Science and Technology department (DST) to cultivate knowledge-based new innovations and ideas propelled by technology into feasible start-ups.

States Start Up Ranking 2021
Category	State
Best Performers	Gujarat, Karnataka
Top Performers	Kerala, Maharashtra, Odisha, Telangana
Leaders	Assam, Punjab, Tamil Nadu, Uttarakhand, Uttar Pradesh
Aspiring Leaders	Chattisgarh, Delhi, Madhya Pradesh, Rajasthan
Emerging Startup Ecosystems	Andhra Pradesh, Bihar

What is a Start-up? Start-up refers to any company in the first stage of operations. It is founded by one or more people who want to build a product or service for which they believe there is a demand in the market. The funding sources of the building include family and friends, Venture Capitalists(VCs), Crowdfunding, government schemes, etc. According to DPIIT, an entity will be known as a startup if it fulfills the following conditions – Turnover – Less than Rs. 100 Crore Registration – As a private limited company/partnership firm/ limited liability partnership(LLP). Duration – 10 years from the date of registration. Domain – Working in the domain of innovation, improvement of products or processes or services that creates employment and wealth. In August 2022, there were more than 75,000 DPIIT-recognized startups across the country. Some of the prominent start-ups are Testbook, Groww, Bigbasket, etc. National Start-up Day – Every year 16th of January is celebrated as National Startup day to mark the launch of the Startup India Initiative.

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Startup India Seed Fund Scheme: Facts and Figures for UPSC

Facts and figures related to Government schemes are very important for the UPSC exam. So, some of the noteworthy facts related to the Startup India Seed Fund Scheme are given below in the following table:

Startup India Seed Fund Scheme
Full Name of the Scheme	Startup India Seed Fund Scheme (SISFS)
Announced by	Prime Minister Narendra Modi
Launch date	19th April 2021
Launched by	Mr. Piyush Goyal, Minister of Commerce and Industry (MoCI)
Launched from	New Delhi
Main Focus	To provide financial assistance through seed capital to startups.
Nodal Department	Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry
Type of Scheme	Central Sector Scheme
Budget Allocated	Rs. 945 Crore
Eligibility	A startup recognized by DPIIT based on – Established not more than 2 years ago at the time of application. Received not more than Rs.10 lakh of monetary support under any other state or central government scheme.
Target	To support more than 3500 startups across the country.
Benefits	Seed fund up to Rs 20 lakhs for validation of Proof of Concept, prototype development, etc. Seed fund up to Rs 50 lakhs for market entry, commercialization, etc.

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Conclusion

• Startups that are supported in their early stages will create a large number of job possibilities for everyone. The Seed Fund Scheme aims to foster virtual incubation for startups by allowing incubators to assist entrepreneurs from across the country.
• Apart from government initiatives that encourage entrepreneurship, it is also the responsibility of India’s corporate sector to support startups and establish synergies in order to build meaningful technology solutions and sustainable and resource-efficient growth.

We hope all your doubts related to the topic of the Startup India Seed Fund Scheme are addressed after going through this article. Testbook provides comprehensive notes for Civil services and various other competitive examinations. It has always assured the quality of its product, like content pages, live tests, Gk and current affairs, mocks, and so on.Ace your UPSC preparation with Testbook. Download the Testbook App now!