Startup India Seed Fund Scheme (SISFS)

The Seed Fund will be disbursed to selected startups through eligible incubators across India.

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I. WHAT IS STARTUP INDIA SEED FUND SCHEME?

Startup India Seed Fund Scheme (SISFS) provides financial assistance to startups for proof of concept, prototype development, product trials, market-entry, and commercialization. Eligible startups can apply for the scheme on the Startup India portal. The Seed Fund will be disbursed to selected startups through eligible incubators across India.

1. Incorporation: A startup, recognized by DPIIT, incorporated not more than 2 years ago at the time of application.

2. Idea: The startup must have a business idea to develop a product or a service with a market fit, viable commercialization, and scope of scaling.

3. Technology: The startup should be using technology in its core product or service, or business model, or distribution model, or methodology to solve the problem being targeted.

4. Innovation: Preference would be given to startups creating innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, etc.

5. Financial Aid: Startup should not have received more than Rs 10 lakh of monetary support under any other Central or State Government scheme.

6. Indian Company: Shareholding by Indian promoters in the startup should be at least 51% at the time of application to the incubator for the scheme, as per Companies Act, 2013 and SEBI (ICDR) Regulations, 2018.

7. Grant: A startup applicant can avail seed support in the form of grant and debt/convertible debentures each once as per the guidelines of the scheme.

II. HOW TO APPLY FOR THE SCHEME?

The Process for applying for SISFS is totally online. No physical meeting is required.

Step 1: Login in Seed Fund Scheme with the Startup India Credentials.

Step 2: Fill the details required under following tabs:
• Authorized Representative
• Entity Details & Start-up Details
• Funding Details
• Incubator Preference
• Upload Documents

III. EXPERTS ADVISORY COMMITTEE

The overall execution and monitoring of the Startup India Seed Fund Scheme (SISFS) will be done by an Experts Advisory Committee (EAC) constituted by Department for Promotion of Industry and Internal Trade (DPIIT).

The EAC will evaluate and select incubators for allotment of Seed Funds, monitor progress, and take all necessary measures for efficient utilization of funds towards fulfilment of objectives of Startup India Seed Fund Scheme.

IV. WHERE TO USE SEED FUND?

Seed fund shall strictly not be used by startups for creation of any facilities and shall be utilized for the purpose it has been granted for. A grant can be used for validation of Proof of Concept, or prototype development, or product trials. A debt/ convertible debenture can be used for Market entry, Commercialization, or Scaling up.

V. DISBURSEMENT OF SEED FUND BY INCUBATORS TO STARTUPS

The incubator will disburse the seed fund to an eligible startup as follows:

  • Up to Rs.20 lakh as a grant for validation of prototype development, proof of concept or product trials. The incubator will dispose of the grant in milestone-based instalments related to the development of a prototype, building a product ready for market launch, product testing, etc.
  • Up to Rs.50 lakh of investment for commercialisation, market entry or scaling up through debt, convertible debentures or debt-linked instruments.
  • The startups cannot use the seed fund for the creation of any facilities and should utilise it for the purpose it has been granted.
  • The incubator cannot give more than 20% of its total grant as grants to startups.
  • The funds will be given to startups at the rate of interest not more than the prevailing repo rate for startups supported through debt convertible debentures or debt-linked instruments.
  • The incubator should fix the tenure when sanctioning the loan; however, it cannot be more than five years. A moratorium of up to 12 months can be provided for the startups.
  • The loans sanctioned by the incubator will be unsecured due to the early stage of the startups. Thus, the promoter or third party need not give any guarantee.
  • The incubator will execute a legal agreement with the eligible startups before releasing the first instalment.
  • Subsequent disbursements of the instalments will be linked to the achievement of the previously specified milestones as per agreement between the incubator and startup.
  • The startups will receive the funds in their company bank accounts.
  • The first instalment to the eligible startup will be released within 60 days from receipt of application from the startup.
  • The eligible startup should submit the utilisation certificate and interim progress update to initiate the release of subsequent instalment of the grant.

Q. I have been selected for seed fund, but the quantum of fund/ terms and conditions being set by the incubator are not agreeable to me. What should I do?
The quantum and terms for the seed fund assistance are to be negotiated between the startup and the incubator only. However, the negotiation shall not violate the guidelines led by department.

Q. I need to hire a legal or financial consultant for my seed fund discussions with the incubator. Who will bear the cost of these services?
The startup shall bear the cost of any consultants required to guide them through documentation, negotiations with incubator, signing of agreement with incubator, reporting progress after approval of seed fund, etc. Hiring such an external consultant is not mandatory at all.

Q. Is it mandatory to sign a legal agreement with the incubator after getting my startup selected by them?
Yes, it is mandatory to sign a legal agreement with the incubator to avail the seed fund you have been granted.

Q. Where can I receive the seed funds?
Startups will receive the funds in their company bank accounts.

Q. I had applied for a certain amount of seed fund, but the approved amount is lower/higher. Can I negotiate this?
The applicant can discuss the quantum of seed fund and the milestones associated with the tranches to be disbursed with the Incubator Seed Management Committee. The decision of the Committee shall be final.

Q. How much time will it take for the first instalments of the seed fund to be released to me?
For grants, the first instalment to any selected startup shall be released not more than 60 days from receipt of application from the startup. The startup shall submit the interim progress update and utilization certificate to initiate the release of subsequent instalment of grant.

Q. How often do I have to report back my progress after receiving seed fund?
Each startup will be required to touch base with the incubator team and share updates with them at least once in 15 days via videoconferences or physical meetings. These updates should be shared on the scheme dashboard at least on a monthly basis. In case of milestone-based disbursements, startup shall submit the interim progress update and utilisation certificate to initiate the release of subsequent installment of grant. Startup shall also submit final report and audited utilisation certificate at the end of the project duration.

Q. I have been selected for seed fund, but I would not like to take the process forward. What do I do?
A startup can choose to not avail the support being offered to them under the scheme. The procedure for the same depends on the stage of the startup in the application process.

1. If the startup has been selected and the seed funding has been approved, they will be required to write a short letter mentioning the reason to pull out of the process. Post the acknowledgment of the letter, they will find a cancel application button on the application tracker tab of their dashboard which will allow them to cancel their application.

2. If the startup has already received any seed fund, it will be required to write a short letter mentioning the reason to pull out of the process. Post acknowledgment of the letter, they will be required toreturn the fund within 15 days. Post the acknowledgment of refund, they will find a cancel application button on the application tracker tab of their dashboard.

Q. What if my startup fails after receiving the seed fund? Will there be any liability on me or my company?
It is understood that every startup cannot be successful. The legal agreement that you sign with the incubator will have provisions related to failure of startups supported under the scheme. For failed ventures, the entrepreneur shall share his/her learnings and the reasons for failure in the report and submit this along with the utilization certificate for the fund amount.

CONCLUSION

Many innovative business ideas fail to take off due to the absence of this critical capital required at an early stage for proof of concept, prototype development, product trials, market entry and commercialization. Seed Fund offered to such promising cases can have a multiplier effect in validation of business ideas of many startups, leading to employment generation.

Udyog buddy has assisted various clients by providing legal & secretarial services. Reach out to us at +91 9301789019 or hello@udyogbuddy.com for any assistance.

Disclaimer: The article provided here is solely for information purposes. This is prepared based on information provided on various forums and same has been utilized only for information of the readers. The information presented on this article does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice. In case of necessity, do consult with professionals.

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