Startup India Seed Fund Scheme (SISFS)-Introduction

Easy availability of capital is essential for entrepreneurs at the early stages of the growth of an enterprise. Funding from angel investors and venture capital firms becomes available to startups only after the proof of concept has been provided. Similarly, banks provide loans only to asset-backed applicants. It is essential to provide seed funding to startups with innovative ideas to conduct proof of concept trials. There are many business ideas that do not come into existence because of a lack of capital. So in order to curb this situation, the Government of India has launched a Startup India Seed Fund Scheme. Through this scheme, the government is going to provide financial assistance to entrepreneurs.

The DPIIT has created Startup India Seed Fund Scheme (SISFS) with an outlay of ₹945 Crore to provide financial assistance to startups for Proof of Concept, prototype development, product trials, market-entry, and commercialization. It will support an estimated 3,600 entrepreneurs through 300 incubators in the next 4 years. Through this scheme financial assistance up to ₹50 lakh will provide to the startups at the early stage through incubators.

An Experts Advisory Committee

An Experts Advisory Committee (EAC) has been constituted by Department for Promotion of Industry and Internal Trade (DPIIT), which will be responsible for the overall execution and monitoring of the Startup India Seed Fund Scheme.

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

Note: Seed Funding Application for the Startup will open on 1st July 2021.

Eligibility Criteria for Startups

It should be clearly noted that only DPIIT recognized startups can apply for the SISFS. DPIIT recognized startups means:a “Startup” –

If it’s incorporated as either Private Limited Company or Registered Partnership Firm or Limited Liability Partnership. A sole proprietorship or a public limited company is not eligible as startup
If it is up to 10 years from the date of its incorporation/ registration
If its turnover for any of the financial years has not exceeded ₹ 100 crore
If it is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation
Should not have been formed by splitting up or reconstruction of a business already in existence.

A startup, recognized by DPIIT, incorporated not more than 2 years ago at the time of application. To get DPIIT-recognized, please visit
The startup must have a business idea to develop a product or a service with a market fit, viable commercialization, and scope of scaling.

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.
Preference would be given to startups creating innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defense, space, railways, oil and gas, textiles, etc.
The startup should not have received more than ₹ 10 lakh of monetary support under any other Central or State Government scheme. This does not include prize money from competitions and grand challenges, subsidized working space, founder monthly allowance, access to labs, or access to prototyping facility.
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.
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.

Eligibility Criteria for Incubators

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

The incubator must be a legal entity:

A society registered under the Societies Registration Act 1860, or
A Trust registered under the Indian Trusts Act 1882, or
A Private Limited company registered under the Companies Act 1956 or the Companies Act 2013, or
A statutory body created through an Act of the legislature

The incubator should be operational for at least two years on the date of application to the scheme
The incubator must have facilities to seat at least 25 individuals
The incubator must have at least 5 startups undergoing incubation physically on the date of application
The incubator must have a full-time Chief Executive Officer, experienced in business development and entrepreneurship, supported by a capable team responsible for mentoring startups in testing and validating ideas, as well as in finance, legal, and human resources functions

The incubator should not be disbursing seed fund to incubatees using funding from any third-party private entity
The incubator must have been assisted by the Central/State Government(s)
In case the incubator has not been assisted by the Central or State Government(s):

The incubator must be operational for at least three years
Must have at least 10 separate startups undergoing incubation in the incubator physically on the date of application
Must present audited annual reports for the last 2 years

Any additional criteria as may be decided by the Experts Advisory Committee (EAC)

It is essential to provide seed funding to startups with an innovative idea to conduct proof of concept trials. This would enable these startups to graduate to a level where they will be able to raise investments from angel investors or venture capitalists or seek loans from commercial banks or financial institutions.

Types of Shares traded in stock exchanges in India

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

➡ Department for promotion of Industry and Internal Trade (DPIIT)

Nodal Department

➡ < Experts Advisory Committee (EAC)

Government Representatives & Insustry experts

➡ < Govt assited/Non-Govt assisted incubators (Incubators)

Operational for atleast 2-3 years

DPIIT recognised startups (startuos)

Incorporated less than 2 years ago

Features of Startup India Seed Fund Scheme

Year-round "call for Applications" for Incubators and Startups

It wlll support an estimated 3,600 enterpreneurs through 300 incubators in the next 4 years

An exports advisory committee (EAC, constituted by DPIIT, will be responsible for the overall execution and monitorng of the scheme

Grants upto ₹5 crore will be provided to the eligible incubators selected by the committee.

The selected incubators wil provide grants of up to ₹20 lakh for validation of proof of concept or prototype concept development, or product trial to startups

Investments of up to ₹50 lakh will be provided to thes startups for market entry, commercialization or scaling up through convertible debentures or debt-linked instruments.

Sector-agnostic

No mandatory phsical incubation

PAN -India startup programme

Startups can apply to 3 incubators simultaneously

Startup India Seed Fund Scheme in a nutshell

Startup India Seed Fund Scheme (SISFS) Operative from 01st July, 2021

Aim: Firstly, Startup India Seed Fund Scheme(SISFS)aims to provide financial assistance to startups. Assistance is provided for proof of concept, prototype development, product trials, market entry, and commercialization.

Secondly, it would help to grow startups to a beginner’s level. After that, startups will be able to raise investments from angel investors or venture capitalists or seek loans from commercial banks or financial institutions.

Eligibility:A startup, recognized by DPIIT (Department for Promotion of Industry and Internal Trade), incorporated not more than 2 years ago at the time of application.

Funding from incubators:

Up to ₹20 lakhs as grants for validation of Proof of Concept, prototype development, product trials to startups.
Up to ₹ 50 lakhs for market entry, commercialization, or scaling up through convertible debentures or debt-linked instruments.

Time Limit:After the receipt of the application, each Incubator shall evaluate applicants based on their submissions and presentations and select startups for Seed Fund within 45 days. Startups will receive the funds in their company bank accounts.

Benefits of Startup India Seed Fund Scheme

Easy availability of capital at the early stages of growth an enterprise

It wlll help in creating a robust startup ecosystem in tier 2 and regions, as the smaller towns in India are often not provided with appropriate funding

Funding from angel investors and venture capital firms

Tax exemption under Section 56 of the Income Tax Act(Angel Tax Exemption)

Inspire Innovation & Support transformative ideas

Seed fund offered to such promising cases can have multiplier effect in validation of business ideas of many startups, leading to employment generation

Rate of Interest of not more than prevailing repo rate(4%)

First installment shall be released within 60 days

Post getting recognition a startup may apply for Tax exemption under section 80 iAC of the Income Tax Act, the startup can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation

The tenureshall be of 5 years with moratorium period of up to 12 months

As it is at the early stage of the startups, this shall be unsecured and no gurantee from promotor or third-party required.

Incubators

Incubators are the organizations that work to promote innovation and entrepreneurship among citizens. They basically provide funds and their infrastructure to the startups so that they can carry out their business activities of development, product trial, market entry, commercialization, etc. The government provides incentives to the incubators and the incubators will further provide funds to the startups. Under the Startup India Seed Fund Scheme 2021,the government is going to provide a grant to 300 incubators. The funds provided to the startup under this scheme will be up to ₹ 50 lakh. The incubators can apply under the startup India seed fund scheme through the official portal. After verifying their application the government will grant them the seed fund. The startups can also apply under this scheme directly from the portal and from there they can select the incubators of their choice according to their preference.

Key Highlights of Startup India Seed Fund Scheme

Name Of The Scheme	Startup India Seed Fund Scheme
Launched By	Government Of India
Beneficiary	Entrepreneurs
Objective	To Provide Funds For Startup
Year	2021
Financial Assistance	Up To ₹ 50 Lakh
Total Budget	₹ 945 Crore
Number Of Beneficiaries	3600

Seed Fund to an eligible startup by the incubator shall be disbursed as follows:

1)Up to ₹ 20 Lakhs as grant for validation of Proof of Concept, or prototype development, or product trials. The grant shall be disbursed in milestone-based installments. These milestones can be related to development of prototype, product testing, building a product ready for market launch, etc.
2)Up to ₹ 50 Lakhs of investment for market entry, commercialization, or scaling up through convertible debentures or debt or debt-linked instruments
3)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

Objectives of Startup India Seed Fund Scheme

The main objective of the Startup India Seed Fund is to provide funds to the entrepreneurs for their startups so that they can grow their enterprises. Through this scheme now entrepreneurs require to go to banks and financial institutions in order to get funds for their business idea. They can simply apply through this scheme and get funds directly from the government. Startup India seed fund scheme will fulfill the early requirement of capital at the right time. So that product development, trials, market-entry, etc can take place at the right time. This scheme will also generate a lot of employment and validate the business ideas of startups.

Benefits and Features of Startup India Seed Fund Scheme

The Government of India has launched Startup India Seed Fund Scheme 2021 in order to build a Startup ecosystem
This scheme was launched on 16 January 2016 in order to provide opportunities to entrepreneurs to grow their enterprise
The announcement to launch this scheme was made by our honorable Prime Minister Mr. Narendra Modi
Under this scheme financial assistance up to ₹50 lakh will provide to startups at an early stage through incubators
The government has allocated a budget of ₹ 945 crore for this scheme
This fund will not be used for proof of concept, prototype development, product trial, market entry, commercialization, etc
The government is going to provide funds to incubators and the incubators will be responsible for providing this fund to startups
3600 entrepreneurs through 300 incubators will get the benefit from this scheme in the next 4 years

Implementation of Startup India Seed Fund Scheme

The department for the promotion of industry and internal trade has constituted an Expert Advisory Committee (EAC) which will be responsible for implementation, execution and monitoring of startup India seed fund scheme. Department for promotion of industry and internal trade will be the nodal agency for the implementation of this scheme. This committee will verify the details provided by the incubators and select incubators in order to allow the seed fund. This committee will also monitor the progress of the incubator. The expert advisory committee has the power to make all the necessary actions so that the funds can be utilized efficiently. The expert advisory committee consists of the following members:-

Benefits and Features of Startup India Seed Fund Scheme

Chairman, an individual of eminencem
Representative of department of biotechnology (DBT)
Additional secretary/joint secretary/director/deputy secretary, DPIIT (Convener)
Representative of Department of science and technology (DST)
Financial advisor, DPIIT or his representative
Representative of Ministry of electronics and information technology (MeiTY)
Representatives of Indian council of agricultural research (ICAR)
At least three members nominated by secretary
DPIIT from the startup ecosystem, investors, experts in the domain of R&D, technology development and commercialization, entrepreneurship and other relevant domains.

Experts Advisory Committee (EAC) will convene at least quarterly to:

Evaluate the applications received during the period
Select incubators for funds under the Scheme
Decide the total amount of fund and number of installments in which it is to be allocated to each incubator
Specify milestones to be achieved by each incubator for release of installments

EAC shall also monitor progress of incubators against sanctioned funds under the Scheme and take further actions as may be required. EAC may lay down improved guidelines for selection of incubators under the scheme from time to time.

Monitoring Of Startup India Seed Fund Scheme

The expert advisory committee will review the progress of the startup India seed fund with the selected incubators. Under this scheme for the purpose of objective evaluation, the incubators are required to provide the report as directed by the expert advisory committee. If the incubator is not performing as per the standards then the expert advisory committee has the full authority to discontinue the seed fund support. If the incubator is using the fund for other purposes then legal action will be taken against such incubator.

Factors Determining the Successful Implementation of Startup India Seed Fund Scheme

Progress of market launch

Quantum of loan, angel or VC funding raised

Progress of field trials

Jobs created by startup

Progress of product development

Turnover of startup

Progress of prototype development

Progress of proof of concept

Selected startups shall furnish details on above parameters to incubator in all progress reports
The incubator shall provide the above information real-time to Startup India through their online dashboards and shall present the same to EAC on a quarterly basis
Incubator shall also report return on investment for each Startup. Appropriate matrix may be devised for this purpose.

Repeat Incubator Applicants for Seed Fund- It is understood that every startup cannot be successful. An incubator can reapply for funds under the Scheme when it has disbursed or committed its entire previously released grant.

Note:All the startups that are selected to get the benefit of this scheme are required to provide details on the above parameter to the incubator. The incubator is required to provide the information given by the startup through the online dashboard and also present this information to the expert advisory committee quarterly. Other than that the incubator is also required to report the return on investment of the startup

Utilization of Finance and Accounting under Startup India

Under startup India seed fund scheme proper utilization of funds should be maintained by the incubator and the incubator is required to maintain the accounting records of the received fund. This record shall be maintained in an exclusive project-specific trust and relation account with any nationalized banks. The funds under the startup India seed fund scheme will be disbursed into the bank account of the incubator in three or more installments as per the guidelines of the scheme. If any net return is received from the startup then it can be used for further funding. In case there is no further funding then this money will be returned to DPIIT. Each financial year every incubator is required to report the sanctioned funds, received funds, and disbursed funds. Other than that the incubator is also required to submit the detailed report on the status of utilization of funds and audited expenditure.

Guidelines for Assistance to Incubators

Firstly, Eligible incubatorsthroughout India will hand out funding to eligible startups across India.

Secondly, grants of up to ₹ 5 Crores shall be provided to the eligible incubators selected by the EAC.

Thirdly, the selected incubators shall provide grants of up to ₹ 20 lakhs for validation of Proof of Concept, or prototype development, or product trials to startups.

Finally, Startups will further receive investments of up to ₹ 50 lakhs for market entry, commercialization, or scaling up through convertible debentures or debt-linked instruments.

The expert advisory committee will be responsible for disbursing the grant to the incubators.

The expert advisory committee will disburse the grant up to ₹ 5 crore to the incubator in 3 or more installments

The incubator can use the grant only for disbursing it to the ‘eligible start-ups’.

Expert Advisory Committee has the authority to decide the amount of grant assistance

The incubator cannot use the grant for any other expenses

5% of seed fund grant will also be provided to the incubator for management fees

A component of Management Fee @ 5% of Seed Fund grant to the incubator will be provisioned (i.e. if an incubator is granted ₹ 1 crore of Seed Fund, then by including management fee @ 5%, the total assistance would be ₹ 1.050 crore)

The incubator is not authorized to use the management fees for any other expenses like facility creation or other administrative expenses. The Management Fee will be utilized for administrative expenditure, selection and due diligence of startups, and monitoring of progress of beneficiary startups

Installments shall be released to incubators upon submission of proofs of achievement of milestones as decided by EAC. Proportionate Management fee shall also be released with each installment

The first installment of a grant provided to the incubator will be up to 40% of the total approved amount

The next installment will be received by the incubator when the cash in hand goes below 10% of the total commitment

The expert advisory committee will release the amount of the next installment within 30 days after the submission of proof

From the date of receipt of the first installment, the assistance amount should be used by the incubator within three years

If the incubator has not used 50% of the grant within 2 years then no further amount will be provided to the incubator and the incubator is required to return the unutilized fund with interest

Interest earned on all unutilized funds available with incubators shall be taken into account and adjusted at the time of next release.

The startup selected under this scheme are not required to pay any kind of fees

The incubator has to provide the physical infrastructure to the startup in order to maintain regular functioning, support, development, etc

Incubator is also responsible for providing networking with investors

The incubator has to maintain a transparent process of selection of startups

The scheme will have a corpus of ₹ 945 Crore. This will be divided over the next 4 years.

The financing of beneficiaries will be done with efficiency and care. Selected incubators would be responsible for proper management and disbursement of the Seed Fund

Selection Procedure of Startups

Selection Procedure of Incubators

All the incubators across the country will be invited to participate in the startup India seed funds scheme through the official portal or any other platform which will be specifically designed for this purpose on https://www.startupindia.gov.in
The following points are to be considered while selecting the incubator

Quantum of fund applied, along with fund deployment plan with timelines

Deployment plan

Number of startups that the incubator intends to support

Mentoring provided in last 3 years (number of mentors hired, average mentoring hour allocated per startup per month, Number of Intellectual Property (patents, copyrights, designs, and trademarks) registered by incubatees)

Funding support extended in the last 3 years (investment agreement, number of startups invested in, total Corpus allocated to incubatees, total investment raised by incubatees from external sources)

Incubation support in last 3 years (number of startups incubated, success rate, number of startups that cross revenue of ₹1 crore in 1 year, Number of startups that raised follow on investments, survival rate of startup)

Other support extended to incubatees in last three years:(Industry/Corporate connects, Events held for stakeholder engagements, Participation in other events)

Composition of ISMC (Incubator Seed Management Committee) (as defined in para 7)

Availability of infrastructure, testing labs etc.

Quality of team of incubators

Fulfillment of eligibility criteria

Expert Advisory Committee has the authority to make changes in the guidelines of selection of incubators from time to time
The expert advisory committee will also monitor the progress of the grant
Incubators can apply under this scheme throughout the year

Selection Procedure of Startups

All the incubators who will apply under the startup India seed fund scheme are required to constitute a committee which will be called as incubator seed management committee (ISMC). This committee will evaluate and select a startup for a seed fund. This committee consists of the following members:-

Representatives from state government startup nodal team

Nominee of the incubator(chairman)

Representative of venture capital fund or Angel network

Two successful entrepreneurs

Domain expert from the academy

Domain expert from industry

Any other relevant stakeholder

The final composition and members of ISMC of each incubator shall be approved by EAC and will be a critical parameter in selection of incubators
The expert advisory committee is responsible for selecting the members of the incubator seed management committee
The open, transparent, and fair process should be followed while selecting the startup as it is online call for applications
Startups have to submit certain details like team profile, problem statement, product overview, service overview, business model, etc
Startups can apply for seed fund in any 3 incubators according to preference
All applications received will be shared online with respective incubators for further evaluation
All the startups will be selected on the basis of eligibility criteria
If an application is rejected then the applicant can apply afresh
All the rejected applicants will be informed about the rejection through email
Applicants can also track the progress of their application on the official portal
The incubator will select the startup and provide seed funding
While filling the application form the startup has to provide the preference and according to this preference the startup will be selected
The startups are required to give a presentation of their idea before the incubator seed management committee and on the basis of this presentation incubator will shortlist applicants
Within 45 days of receipt of the application, the incubator seed management committee will evaluate applicants on the basis of their submission and presentation and select eligible startups

Criteria for short listing start ups

S.No.	Criteria	Details	Weightage (%)
1.	Is there a need for this Idea?	Market size, what market gap is it filling, does it solve a real-world problem?	p
2.	Feasibility	Feasibility and reasonability of the technical claims, methodology used/ to be used for (Proof of Concept)PoC and validation, roadmap for product development	q
3.	Potential Impact	Customer demographic & the technology’s effect on these, national importance (if any)	f
4.	Novelty	USP of the technology, associated IP	s
5.	Team	Strength of the team, Technical and business expertise	t
6.	Fund Utilization Plan	Roadmap of money utilization	u
7	Additional Parameters	Any additional parameters considered appropriate by incubator	v
8	Presentation	Overall assessment	w
			100%
		Weightages for criteria (p, q, r, s, t, u, v, w) may be assigned by each incubator differently

Incubator may shortlist applicants based on their evaluation for a presentation before ISMC
ISMC shall evaluate applicants based on their submissions and presentations and select startups for Seed Fund within 45 days of receipt of application
All incubators shall provide information about progress of evaluation of startups real-time to Startup India portal
Selected startups shall receive seed funding under the respective incubator that selects them as beneficiaries as per their preference shared during application (for example, if incubators at Preference 1 and Preference 2 both select a startup, the funding shall be given by Preference 1 incubator. If Preference 1 incubator rejects and Preference 2 incubator selects, the funding shall be given by incubator at Preference 2, and so on.)
All applicants will be able to track the progress of their application on the Startup India portal on a real-time basis
Applicants who are rejected will also be notified through email
An applicant, if rejected once, may apply afresh
Not more than 20% of the total grant to an incubator shall be given as grants to start-ups by incubator. Rate of interest (as defined under GFR) on unutilized funds available with incubator would also be taken into account and adjusted at the time of next release by DPIIT.
For startups being supported through convertible debentures or debt, or debt-linked instruments, funds shall be provided at a rate of interest of not more than prevailing repo rate. The tenure should be fixed at the time of sanctioning the loan by the incubator, which shall be not more than 60 months (5 years). A moratorium of up to 12 months may be provided for the startups. Because of the early stage of the startups, this shall be unsecured and no guarantee from promoter or third-party will be required.
A grant and debt/ convertible debenture are different financing instruments to cater different startup needs. The following table can help an applicant startup decide which instrument shall suit their needs better. The final decision on this should be at the startup applicants’ discretion.

Parameter	Grant	Debt/Convertible Debenture
Debt/Convertible Debenture	Ideation Stage	Commercialization & Scale-up stage
Need Catered by the fund	Validation of Proof of Concept, or Prototype development, or Product trials	Market entry, Commercialization, or Scaling up
Max. funding amount	Upto ₹ 20 Lakhs	Upto ₹50 Lakhs
Financing Terms	Under this scheme, the grant will be disbursed in milestone-based installments. These milestones can be related to development of prototype, product testing, building a product ready for market launch, etc.	For startups being supported through convertible debentures or debt, or debt-linked instruments, funds shall be provided at a rate of interest of not more than prevailing repo rate. The tenure should be fixed at the time of sanctioning the loan by the incubator, which shall be not more than 60 months (5 years). A moratorium of up to 12 months may be provided for the startups. Because of the early stage of the startups, this shall be unsecured and no guarantee from promoter or third-party will be required.

The incubator shall execute a legal agreement with the selected startups before the release of the first installment. The incubators shall ensure that the necessary terms and conditions, including milestones, related to the Seed Fund are clearly detailed in the agreement
Subsequent disbursement would be linked to the achievement of previously specified milestones as per agreement between the startup and incubator
Startups will receive the funds in their company bank accounts
For grants, the first installment 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 installment of grant.
Startup shall submit final report and audited utilization certificate at the end of the project duration. For failed ventures, the entrepreneur will share his/her learning and the reasons for failure in the report and submit this along with the utilization certificate for the fund amount
The incubator or any of its staff members shall not charge any fee in cash or in kind from applicants or beneficiaries under the scheme for any process of selection, disbursement, incubation, or monitoring
A grievance cell shall be set up at DPIIT for the scheme to address issues of applicants, such as delayed evaluation of applications, delayed disbursements by incubators, etc.

The incubator shall maintain an exclusive, project-specific Trust and Retention Account (TRA) with any nationalized bank. Funds under this scheme shall be released into that account in milestone-based three (or) more installments.
Any net return received from beneficiary startup can be used for further funding in startups as per guidelines of this scheme (net returns shall include principal, interest, and profits). In case of no further funding of startups using this money for three years, this shall be returned to DPIIT
Each incubator shall report the funds sanctioned, received, and disbursed to each startup for each financial year
Incubators would also submit detailed report on status of utilization of funds and audited expenditure for each financial year

Progress Monitoring

Experts Advisory Committee (EAC) will review the progress of the scheme with the Incubators selected under the scheme. The Incubators will provide the reports as may be directed by the EAC for objective evaluation. In case of poor performance of any selected incubator, EAC may decide to discontinue seed fund support to the incubator and take further action as may be required. Appropriate legal action will be taken against the selected incubator in case it uses the grant for purposes other than those for which it has been awarded

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 utilization certificate to initiate the release of subsequent installment of grant. Startup shall also submit final report and audited utilization certificate at the end of the project duration.

Seed Fund Disbursement to Startups by Incubators

The scheme mandates that the startups should not have received more than ₹10 lakh of monetary support from either the central or state governments to remain eligible for this fund. To begin with, the selected incubators will be given a grant of up to ₹ 5 crore on an installment basis which they will use to fund the eligible startups. Once incubated, the startups will be provided physical infrastructure, support for testing, mentoring for prototype or commercialization, human resources and legal compliances, all by the incubators. The incubators also expected to provide networking with investors and opportunities for showcasing in various national and international events. Online applications will be invited from startups across India to participate in the scheme by the incubators. Then they will be shortlisted by the internal committee of the incubators. This committee will have a venture capital fund or angel network, a domain expert from the industry and a domain expert from academia among others. Incubators on the other hand, will be selected on the basis of the number and performance of startups they have incubated so far, available infrastructure and testing facilities with them. The Indian startup ecosystem suffers from capital inadequacy in the seed and proof-of-concept development stage. Many startups die because of the lack of risk-taking appetite in the Indian investment ecosystem. This is the reason why unlike the US or China, India hasn’t seen enough of product innovations and instead remained to be a service provider.

All the eligible startups will receive the seed fund under the startup India seed fund scheme as follows:-

The fund will provide up to ₹ 20 lakh as grant for validation of proof of concept to the startups, prototype development or product trial. This grant will be disbursed in milestone-based installments. On the other hand, ₹ 50 lakh of investment will be made for market entry, commercialization or scaling up the business through convertible debentures of debt or debt linked instruments

The startup is not allowed to use this fund for the creation of any facility.
In order to address the issues of the applicant, a grievance cell will be set up
At the end of the project duration, the startup is required to submit a final report and audited utilization certificate of funds
If the venture is failed then the entrepreneur is required to share his learning and reasons for failure in the report. The report has to be submitted along with a utilization certificate of the fund amount
The first installment to the startup will be provided within 60 days of receipt of the application form
For receiving the first installment the startup has to submit the interim progress update and utilization certificate
The startup will be provided the funds in their company bank account
The second installment will be provided to the startup after achieving the previously specified milestone
Before the release of the first installment, the incubator is required to execute a legal agreement with the startup in which all the necessary terms and conditions, milestones, etc should be mentioned
The incubator can only provide 20% of the total grant received by them to the startups

Basic Documents to Apply For Startup India Seed Fund

Aadhar card
GST number
Bank account details
Lease agreement
Detail report of the project
Passport size photograph
Mobile number

Startup Recognition & Tax Exemption

Startup Recognition:Under the Startup India Action Plan, startups that meet the definition as prescribed under G.S.R. notification 127 (E)are eligible to apply for recognition under the program. The Startups have to provide support documents, at the time of application.

Eligibility Criteria for Startup Recognition:

The Startup should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership
Turnover should be less than ₹ 100 Crores in any of the previous financial years

An entity shall be considered as a startup up to 10 years from the date of its incorporation
The Startup should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/ create wealth. An entity formed by splitting up or reconstruction of an existing business shall not be considered a "Startup"

Startup India: 80 IAC Tax exemption:

Post getting recognition a Startup may apply for Tax exemption under section 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Startup can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation.

Eligibility Criteria for applying to Income Tax exemption (80IAC):

The entity should be a recognized Startup
Only Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC
The Startup should have been incorporated after 1st April, 2016

Startup India: Tax Exemption under Section 56 of the Income Tax Act (Angel Tax)

Post getting recognition a Startup may apply for Angel Tax Exemption.

Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act:

The entity should be a DPIIT recognized Startup
Aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of share, if any, does not exceed ₹ 25 Crore.

Thus a startup is a small business started with the objective to solve a problem. These are the companies which are generally operated by the founders or a single person. These companies are generally offering those services which the founders think are not available or are available in an inferior quality.Startups provide jobs opportunities to the people which help in the economic development of the society.

Recognition of a startup shall be up to 7 years starting from the date of incorporation. Secondly, a startup must not exceed the threshold of ₹25 crores. Remember once your startup ceases to be eligible, you should intimate this to DIPP within the period of 21 days

Points to remember:

Startup recognition is granted by the department of industrial policy and promotion (DIPP) and approval in regards to tax benefits shall be provided by the inter-ministerial board of certification.
The tax benefit is available for both companies and LLP registered on or after 1st of April 2016 and with turnover not less than ₹25 crores. This provision is available under section 80 IAC of the Income Tax Act, 1961.
Registered partnerships are also considered under in normal startup scenario, but if you want to claim tax benefits registered partnerships are not eligible for the scheme.
Three years of tax benefits will be available and the startups have to choose in which lot of 7 years they want to avail the benefit. Tax benefit will remain consistent throughout the 3 years.

Criteria to be eligible for DPIIT start up recognition

Company Age

Period of exitence and operations should not be exceeding 10 years from the date of incorporation

Company Type

Incorporated as a Private Limited Company, a Registered Partnership firm or a Limited Liability Partnershi

Annual Turnover

Should have an annual turnover not exceeding 100 crore of any of the financial years since its incorporation

Original Entity

Entity should have an been formed by splitting up or reconstructing an already existing business

Innovative & Scalable

Should work towards development or improvement of a product, process or service and/or hace scalable business model with high potential for creation of wealth and employment

Certified by the Nodal Agency

The startups shall not have any other pending dues with any of the Government agencies and shall not be blacklisted by ang Govt. agency in india

No institution , corporate bosy, society or an NGO shall be eligible for assistance under the scheme

It is to be noted that not all startups will get tax benefits. There is a difference between startup recognition and startup recognition with tax. Some points to consider in this regard:

Startup recognition is granted by the department of industrial policy and promotion (DIPP) and approval in regards to tax benefits shall be provided by the inter-ministerial board of certification.
The tax benefit is available for both companies and LLP registered on or after 1st of April 2016 and with turnover not less than ₹ 25 crores. This provision is available under section 80 IAC of the Income Tax Act, 1961.
Registered partnerships are also considered under in normal startup scenario, but if you want to claim tax benefits registered partnerships are not eligible for the scheme.
Three years of tax benefits will be available and the startups have to choose in which lot of 7 years they want to avail the benefit. Tax benefit will remain consistent throughout the 3 years.

Steps to register your start-up with DIPP

Step 1: Incorporation of the business

Incorporating your business in Limited Liability Partnership or a Private Limited company or a Firm. You must follow the ordinary procedures as a certificate of incorporation, Pan card and other compliances related to the particular type of business. Registration must be after or in 1st April 2016.

Step 2: Registering business with the startup India scheme

Registering for a startup is a very easy process. All you need to do is upload a form online with all requisite forms startup India website. The entire process is simplified and made online by the government.

Step 3: Documents required to be upload online (upload only .pdf format)

Recommendation letter from the following:

Any patent filed and published in patent journals available online or offline.
Incubators who are established in post graduation colleges in India
Support letter from one of the startups who is funded through central or state Government authorities or any incubator which is duly recognized by the government of India.
Letter of funding which should not be less than 20% in equity by angel or incubation fund.
Incorporation certificate of the business:
You must upload your certificate of the incorporation of your business.
A brief description of your business:
A description of the innovation you included in your product.

Step 4: Choose if you would like to have tax benefits

After getting all the work done you need to go through one more step of getting an approval from the inter-ministry board. It totally depends upon the ministry that they will approve your application or not. Once they approve your application then you will able to register your startup with tax benefits. Startups recognized by DIPP can avail IPR related benefits without requiring any further license.

Step 5: Self-certify your documentation

You must self-certify all your documents before filing for the recognition. Check your company is qualifying all the required conditions to avail the benefits i.e within first 7 years you can apply, ₹25 crore turnover must not exceed, innovation in the product is must, the idea must not be copied, your business must not result from any reconstruction or splitting

Step 6: Getting recognition number

You are all set to apply for the recognition and on applying you will be allotted with one unique recognition number. Certificate of recognition will be issued after going through the documents submitted by you. Remember, always take much care while uploading the documents, if it is found that you have upload forged document or some documents were required but you forget to upload then you shall be liable for the fine of 50% of the paid up capital of your startup with ₹25000 minimum fine.

Step 7: Other areas to look over

Patents, trademark, copyrights, design etc.
You need to pay only 80% of the fees on applying any of these i.e patent, trademark, copyright or design etc. Only some of the facilitators are qualified by the government of India to provide this discount.
Funding
One of the major difficulty in front of these startups is that they lack in funding. The government of India with this initiative is providing them with funding so that they may not face any challenge in running their business effectively and efficiently.

How to avail tax benefits under this scheme

Uniqueness of business plan

If you are planning to start an E-commerce startup than you are not covered under this scheme. Please note this that if you want to get benefits of this scheme than your startup must have some innovative part in it.The seed fund is not generally given for service startups and SMEs working in trade and commerce

If after going through the application the government officials are satisfied that the startup is having some differentiating factor than only it will get benefits.

Your startup must be problem-solving

Your startup should focus on solving some problems that our society is facing. Your product must have that capability to solve a problem which makes our lives more comfortable.

Incorporation of your startup

Make sure that your startup i.e Limited liability partnership or a company must be registered on or after 1st April 2016.

Selecting “with Tax benefits” while registering

You must click on “registration with Tax benefits” while registering with startupindia.org.

The business model must be working

Your business model must be working at the time of application. There may be chances of rejection by the incubators if your business model is not working.

Recommendation letter from the following authorities

Any patent filed and published in patent journals available online or offline.

Incubators who are established in post graduation colleges in India.

Support letter from one of the startups who is funded through central or state Government authorities or any incubator which is duly recognized by the government of India.

Letter of funding which should not be less than 20% in equity by angel or incubation fund.

Approval from the inter-ministerial board

After getting all the work done you need to go through one more step of getting an approval from the inter-ministry board. It totally depends upon the ministry that they will approve your application or not. Once they approve your application then you will able to register your startup with tax benefits.

Procedure to Apply For Startup India Seed Fund Scheme for Incubators

➡

First of all, go to the official website of the startup India seed fund scheme The home page will open before you On the homepage, you have to click on apply now

➡

After that, you have to click on apply now under for incubator section Now you have to click on create an account A new page will appear before you On this new page, you have to enter your name, email id, mobile number, and password

➡

After that, you have to click on the register An OTP will send to your registered ID You have to enter this OTP into the OTP box Now you have to click on submit

➡

After that, you have to click on the login option Now you have to select your country and click on the input letterbox & click on the next option The Application form will appear before you where you have to enter your basic info, contact info, point of contact info, and success stories in this application form

➡

After that, you have to click on save profile Now you are profile will send to a moderator for approval

➡

You have to again login on to the portal Now you have to click on apply now under the seed fund scheme The Application form will appear before you You have to enter all the required details in this application form like general detail, incubator team detail, incubator support detail, fund requirement details, etc

After that, you have to upload all the necessary documents Now you have to click on submit

Procedure to Apply For Startup India Seed Fund Scheme for Startups

➡

First of all you have to go to the official website of the StartUp India Seed Fund Scheme. After this, the homepage of the website will open in front of you. On the homepage of the website, you have to click on the option of “StartUp India Seed Fund Scheme”. After this, a new page will open in front of you. Here on this page you need to click on the Create an Account link and the registration form will open in front of you.

➡

Fill this form with required details like Name, Email ID, Mobile Number, Password , Confirm Password. After successful registration login on the portal and the user Dashboard will open on your device screen. Go to the apply now tab and application form will open in front of you.

➡

In this application form enter Enter the subtleties of the startup in the principal area, the contact number in the subsequent segment, the class depiction in the following segment, and afterward your advantage as demonstrated in the structure. Online candidates can pick any of the three Incubators according to their decision.

➡

All applications got, will be imparted online to the particular Incubators for additional assessment. Likewise, up-and-comers applying to the plan ought to submit insights concerning the group profile, issue proclamation, item/administration outline, plan of action, client profile, market size, measure of cash, and so forth

➡

At that point, the Incubators will waitlist the competitors who meet all the qualification measures. Chosen candidates should make a show before ISMC. After the show, the startup should make reference to the advancement on the Startup India gateway.

All chosen new companies will get seed cash from the public authority according to the decision of the candidates. Kindly note that dismissed candidates have the chance to apply once more after 3 months of receiving a rejection

The Legal Process of Raising Funding for Your Startup- a detailed Analysis

Step 1 – Preliminary Steps

When it comes to getting investment, a business plan and other documents are essential ways to communicate your company as an investment opportunity investors shouldn’t miss out on, particularly as they will be inundated with requests for investment.

Correct legal structure – it is worth noting that you can’t give away shares in your business in exchange for investment monies unless you have a legal entity with shares, i.e. a private limited company. So, if at the moment you are operating as a sole trader, or you haven’t started trading yet but intend to seek investment in the future, you will need to incorporate as a company and transfer all property owned by the ‘business’ into the company name.

Executive Summary – this is the written ‘elevator pitch’ for your business. Investors should want to read more but not be left wondering what the core of the business is.

Business plan – this is the detailed case for your business, which will include your market research, any traction to date, financial forecasts, the amount of investment being sought, and for what.

Presentation or ‘Pitch Deck’ – sometimes you will send this out as reading material and sometimes you will be standing up and presenting it, so prepare two versions tailored to your audience/ reader..

Share capitalisation table – you may need to draft the help of a solicitor to help prepare your share capitalisation table. This will set out the structure of shares for your company before and after investment.

Create a list of target investors – this is for your own benefit, not investors. Research the investors you are going to approach and create a list of your ideal investors and tailor your documentation to their criteria.

Network – this is not a legal part of the process but it is an essential aspect of getting investment. Try to reach out to connections in your network who may either be able to introduce you to potential investors, or who will be able to advise you on the process along the way and review your documentation. Your solicitor will have lots of contacts with experience in the various elements of investment, so you should see how they can help you beyond assisting with the documentation.

Step 2 – Due Diligence

Due diligence is the term given to the investigatory work done around a transaction such as investment where the investor conducts detailed research into the financial, corporate and contractual status of your company. Your investors will usually make a preliminary request for you to provide documents which will include your corporate information, budgets, forecasts, key supplier/ customer contracts in place, employees and employment contracts, schedule of intellectual property, a schedule of property or leases, a list of equipment owned by the company, details of other investors, shareholders, and bank loans, any existing or future litigation, tax and GST filings and insurance documentation, and, if applicable, your data protection policies.

Step 3 – Term Sheet

The term sheet sets out the terms on which your investor is going to give you funding be that by taking equity in your company, a convertible note, or another arrangement. It will also set out any conditions you will have to meet in order to successfully gain funding. It will also include decisions about dilution of shares and decision making rights. The term sheet is not necessarily a legally binding agreement; it is just the headline terms of the long form documents listed in Step 4 before the parties go through the more minor details. The term sheet can be prepared by your side or the investor’s, but in either case, it is important to seek advice from a solicitor to ensure that you understand each term, but also so that your solicitor may negotiate the most favorable terms possible on your behalf.

Step 4 – Long Form Documents

Once the headline terms have been agreed and the due diligence has been completed, your (or the investor’s) solicitor will start to prepare the long form documentation which will implement the funding arrangement. The following documentation will usually be involved:

Investment Agreement-this will set out the agreed terms in the term sheet in more detail. Future investors may want to see this agreement to know how much control other investors have in your company.

Vesting Provisions (these may be drafted into the shareholder’s agreement) – vesting provisions are usually designed to protect the investor or major shareholders from key members of the founding team leaving the company soon after investment, meaning that certain shares will ‘vest’ over time or upon meeting certain milestones.

Subscription Agreement – this agreement is the promise of your business to sell a certain number of shares to the investor at a certain price, and the agreement of the investor to pay that price.

Articles of Association – the articles govern the operation of the company once it has received the investment.

Step 5 – Closing Date/Receive Cash

Once all the specific conditions of investment have been met, the documents have been prepared and terms agreed, a closing date will be scheduled for the signing of the agreements and the transfer of the shares and funds, when you have successfully secured your first round of funding. ISMC shall evaluate applicants based on their submissions and presentations and select startups for Seed Fund within 45 days of receipt of application

Startups can apply for seed fund in any 3 incubators according to preferenceSelected startups shall receive seed funding under the respective incubator that selects them as beneficiaries as per their preference shared during application (for example, if incubators at Preference 1 and Preference 2 both select a startup, the funding shall be given by Preference 1 incubator. If Preference 1 incubator rejects and Preference 2 incubator selects, the funding shall be given by incubator at Preference 2, and so on.)For grants, the first installment 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 installment of grant. For debt or convertible debentures, a similar timeline will be aimed but it is understood that due diligence and documentation in these cases can be sometimes time-consuming

Step 6 –SISFS

The Startup India Seed Fund Scheme (SISFS) provides tax reliefs for early stage investors being supported through convertible debentures or debt, or debt-linked instruments, funds shall be provided at a rate of interest of not more than prevailing repo rate, in certain qualifying companies and are designed to encourage investment in startups. The tenure should be fixed at the time of sanctioning the loan by the incubator, which shall be not more than 60 months (5 years). A moratorium of up to 12 months may be provided for the startups. Because of the early stage of the startups, this shall be unsecured and no guarantee from promoter or third-party will be required.

There are different rules on qualifying for each scheme, so you should seek the advice of a solicitor before you raise money to ensure that your company will meet the criteria, making you more attractive to investors. Before the investor can claim tax relief on their investment in your company, you will need to register yourself under the scheme and demonstrate that your company meets the criteria. Saying that you are eligible for SISFS under Section 56 and then not actually meeting the criteria may lose you your investors, so make sure you seek advice early on for how to meet these.

Step 7 – Accounting & Administration

The incubator shall maintain an exclusive, project-specific Trust and Retention Account (TRA) with any nationalized bank. Funds under this scheme shall be released into that account in milestone-based three (or) more installments.Any net return received from beneficiary startup can be used for further funding in startups as per guidelines of this scheme (net returns shall include principal, interest, and profits). In case of no further funding of startups using this money for three years, this shall be returned to DPIITEach incubator shall report the funds sanctioned, received, and disbursed to each startup for each financial year

Incubators would also submit detailed report on status of utilization of funds and audited expenditure for each financial year Startup shall submit final report and audited utilization certificate at the end of the project duration. For failed ventures, the entrepreneur will share his/her learning and the reasons for failure in the report and submit this along with the utilization certificate for the fund amount, However, it doesn’t stop there. Once you have external investors, your accounts and bookkeeping will need to be in immaculate condition and completely up to date. You will probably also have reporting obligations as part of your investment terms so at any given time you may need to report on the financial health of the company

Conclusion

Seed Funding

It typically represents the first official money that a business venture needs or enterprise raises
It helps a company to finance its first steps, including things like market research and product development.
There are many potential investors in a seed funding situation: founders, friends, family, incubators, venture capital companies and more
One of the most common types of investors participating in seed funding is a so-called "angel investor." Angel investors tend to appreciate riskier ventures (such as startups with little by way of a proven track record so far) and expect an equity stake in the company in exchange for their investment.

Department for Promotion of Industry and Internal Trade

The department was earlier called Department of Industrial Policy & Promotion and was renamed as DPIIT in January, 2019
It comes under the Ministry of Commerce and Industry
In 2018, matters related to e-commerce were transferred to the Department and in 2019; the Department was given charge for matters related to Internal Trade, welfare of traders and their employees and Startups.
The role of DPIIT is to promote/accelerate industrial development of the country by facilitating investment in new and upcoming technology, foreign direct investment and support balanced development of industries.
Major engagements of DPIIT:

Business Reform Action Plan (BRAP) ranking of states
Industrial Corridors
Invest India,
Make in India initiative, etc.

Seed Fund offered to such promising cases can have a multiplier effect in validation of business ideas of many startups, leading to employment generation. Indian government is providing enough help to the startups to cope up with the economy. Moreover, many startups have registered themselves under this startup India regime so as to get maximum benefits from the government. As the result of this scheme more and more entrepreneurs are getting motivation and they are starting up their companies and contributing towards making society more efficient and comfortable. Generating more and more jobs for the country is the reward we are getting from the startup India scheme. Startup India is one of its kind schemes. Key announcements made during the startup India action plan
Startups shall be exempt from the payment of the income tax for three years
80% shall be rebate availed by the startups on the filing of the patent application
A fast-track mechanism is also set up for patent applications.
Up to 3 years there will be no compliance in regards to the environmental law compliance, labor post self-certification
A hub for the startup India will be started with a single point of contact which can be available after site launch
Total corpus of ₹ 2500 crore will be the initial fund input by the government and up to ₹ 10000 crores in next 4 years shall be poured in.
A mobile app shall be launched which will help the startups to register via that app within one day
Exemption from the taxation of capital gain.

Frequently Asked Questions

1. 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
2. Who can apply to SISFS?
- A startup, recognized by DPIIT, incorporated not more than 2 years ago at the time of application is invited to apply for the scheme. It should be clearly noted that only DPIIT recognized startups can apply for the SISFS. DPIIT recognized startups means: a “Startup” –
- 1.If it’s incorporated as either Private Limited Company or Registered Partnership Firm or Limited Liability Partnership. A sole proprietorship or a public limited company is not eligible as startup
- 2.If it is up to 10 years from the date of its incorporation/ registration
- 3.If its turnover for any of the financial years has not exceeded ₹ 100 crore
- 4.If it is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation
- 5.Should not have been formed by splitting up or reconstruction of a business already in existence.
3. How much seed funding can a startup receive under the scheme?
- Up to ₹20 Lakhs as grant for validation of Proof of Concept, or prototype development, or product trials. The grant shall be disbursed in milestone-based installments. These milestones can be related to development of prototype, product testing, building a product ready for market launch, etc.
- Up to ₹ 50 Lakhs of investment for market entry, commercialization, or scaling up through convertible debentures or debt or debt-linked instruments
- 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
4. Can I apply for the scheme as an individual entrepreneur, or do I need a team?
- No, individual entrepreneurs are not eligible to apply for support under the scheme. Only DPIIT recognized startups can apply for the SISFS.
5.Does the scheme support startups from specific sectors?
- SISFS is a sector agnostic scheme, which means that startups from any sector can apply for the scheme. However, preference would be given to startups creating innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defense, space, railways, oil and gas, textiles, etc. This list of sectors is indicative and not exhaustive.
6.Are there any minimum education qualification criteria for founders to apply for SISFS?
- There is no minimum education qualification required for founders to apply for SISFS
7.Are there any exemptions to any of the eligibility criteria?
- No, there are no exemptions to any of the eligibility criteria. All the criteria must be met on the date of application submission.
8. What all can I use the seed fund for?
- 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
9. How can I apply to SISFS?
- DPIIT-recognized startups can login using the credentials used during the startup recognition process to apply for the scheme.
10. Is the SISFS application process completely online?
- The application submission is completely online, and no physical submission of documents is required.

11. Is there a fee for applying to this scheme?
- There are no application fees for the scheme. Even after the selection of a startup by an incubator for assistance under this scheme, the startup shall not be charged any fees. The incubator or any of its staff members shall not charge any fee in cash or in kind from applicants or beneficiaries under the scheme for any process of selection, disbursement, incubation, or monitoring.
12.Why is the application form allowing me to apply to 3 incubators?
- The scheme aims to maximize the chances of each startup applicant getting supported through seed funds. It also aims to give startups an opportunity to get supported by a relevant incubator that can give the necessary guidance to them. Thus, we give startups an option to apply to 3 different incubators according to their preference. For example, if incubators at Preference 1 and Preference 2 both select a startup, the funding shall be given by Preference 1 incubator. If Preference 1 incubator rejects and Preference 2 incubator selects, the funding shall be given by incubator at Preference 2, and so on.
13.How do I choose the incubators to apply to?
- The incubator preference should be filled at the startup applicants’ discretion. Applicants can choose incubators basis their sector, stage, business needs, and strategic goals. Details of the incubators which are part of the scheme will be available on Seed Fund Portal soon.
14. I can see an option to apply either for a grant or convertible debenture or loan instruments. What is the difference between these? How do I choose?

A grant and debt/ convertible debenture are different financing instruments to cater different startup needs. The following table can help an applicant startup decide which instrument shall suit their needs better. The final decision on this should be at the startup applicants’ discretion.

Parameter	Grant	Debt/Convertible Debenture
Debt/Convertible Debenture	Ideation Stage	Commercialization & Scale-up stage
Need Catered by the fund Max. funding amount	Validation of Proof of Concept, or Prototype development, or Product trials Upto ₹ 20 Lakhs	Market entry, Commercialization, or Scaling up Upto ₹ 50 Lakhs
Financing Terms	Under this scheme, the grant will be disbursed in milestone-based installments. These can be related to development of prototype, product testing, building a product ready for market launch, etc	For startups being supported through convertible debentures or debt, or debt linked instruments, funds shall be provided at a rate of interest of not more than prevailing repo rate. The tenure should be fixed at the time of sanctioning the loan by the incubator, which shall be not more than 60 months (5 years). A moratorium of up to 12 months may be provided for the startups. Because of the early stage of the startups, this shall be unsecured and no guarantee from promoter or third-party will be required.

15.Is the information provided by startups in the application form kept confidential?
- Your application is only shared with the incubators you apply to for the purpose of evaluation, and with the Expert Advisory Committee (EAC) for the purpose of monitoring.
16.Do I need to be physically present at incubators’ premises to avail seed funds under this scheme?
- To apply for the scheme, it is not mandatory to be physically present at the incubator’s location. For startups being monitored virtually by the incubator, it is required for both parties to touch base every 30 days. This is to ensure that an incubator will be able to keep a check on the progress of the startup and a startup will be able to take guidance for their business from the incubator.
17. Can I apply to the Startup India Seed Fund Scheme again after receiving a rejection?
- Yes, you can apply to the SISFS again after 3 months of receiving a rejection. This buffer time is given to ensure that you have worked on the feedback received from incubators and are ready to be considered again.
18. Who is going to review my application?
- Nominee of Incubator (Chairman)
- A representative from the State Government’s Startup Nodal Team
- A representative of a Venture Capital Fund or Angel Network
- A domain expert from Industry
- A domain expert from academia
- Two successful Entrepreneurs
- Any other relevant Stakeholder
19. How is the value of plant and machinery computed for SSI registration?

Criteria Is there a need for this Idea?	Details Market size, what market gap is it filling, does it solve a real-world problem?
Feasibility	Feasibility and reasonability of the technical claims, the methodology used/ to be used for (Proof of Concept) PoC and validation, a roadmap for product development
Potential Impact	Customer demographic & the technology’s effect on these, national importance (if any)
Novelty	USP of the technology, associated IP
Team	Strength of the team, Technical and business expertise
Fund Utilization Plan Additional Parameters	Roadmap of money utilization Any additional parameters considered appropriate by the incubator
Presentation	Overall assessment

20.What is the process of evaluation?
- Startups submit their application on the Startup India portal and an email confirmation is shared with them. Applicants can apply for seed fund to any three incubators selected as disbursing partners for this scheme in order of their preference
- All applications received will be shared online with respective incubators for further evaluation.
- For all incomplete applications, a prompt of resubmission will be sent to the startup.
- The incubators shall shortlist applicants as per eligibility criteria
- Eligible applications will be evaluated by Incubator Seed Management Committee (ISMC) using the above parameters.
- Incubator may shortlist applicants based on their evaluation for a presentation before ISMC
- ISMC shall evaluate applicants based on their submissions and presentations and select startups for Seed Fund within 45 days of receipt of application
- Selected startups shall receive seed funding under the respective incubator that selects them as beneficiaries as per their preference shared during application (for example, if incubators at Preference 1 and Preference 2 both select a startup, the funding shall be given by Preference 1 incubator. If Preference 1 incubator rejects and Preference 2 incubator selects, the funding shall be given by incubator at Preference 2, and so on.)
- All applicants will be able to track the progress of their application on the Startup India portal on a real-time basis
- Applicants who are rejected will also be notified through email
21. How much time will it take for my application to get processed?
- After the receipt of the application, each Incubator shall evaluate applicants based on their submissions and presentations and select startups for Seed Fund within 45 days
22. How can I track the status of my application?
- Once the startup has submitted its seed fund scheme application, a dashboard can be accessed using their login credential to check the real-time application status
23.I had filled an order of preference for incubators while applying. Can I change this preference order after application?
- Applications once filled and submitted are final. The preference order of the incubator cannot be changed at a later stage.
24.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. The mandatory elements of the scheme can be seen in the Guidelines,
25. 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, and shall be at the discretion of the startup.
26.I have been selected for seed fund. Is it mandatory to sign a legal agreement with the incubator?
- Yes, it is mandatory to sign a legal agreement with the incubator to avail the seed fund you have been granted.
27. 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.

28. Will my living expenses be borne if I want to be physically incubated at the incubator that is funding me?
- The selected incubator shall provide physical infrastructure to the selected startups for regular functioning, support for testing and validating ideas, mentoring for prototype or product development or commercialization, and developing capacities in finance, human resources, legal compliances, and other functions. They are also expected to provide networking with investors and opportunities for showcasing in various national and international events. Any other expenses, including living expenses, shall be borne by the startup.
29. How much time will it take for the first installment of the seed fund to be released to me?
- For grants, the first installment 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 installment of grant. For debt or convertible debentures, a similar timeline will be aimed but it is understood that due diligence and documentation in these cases can be sometimes time consuming.
30.Where can I receive the seed funds?
- Startups will receive the funds in their company bank accounts.
31.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 utilization certificate to initiate the release of subsequent installment of grant. Startup shall also submit final report and audited utilization certificate at the end of the project duration.
32.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. 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 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 to return 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
33.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.
34.In case I have some complaints regarding the incubator funding me, who shall I reach out to?
- In case of any issue, kindly reach out to grievance form at https://seedfund.startupindia.gov.in/contact
35.What is angel tax?
- Companies which are closely held receive equity funds from outsiders. These investments are held at a premium to the fair price and the amount raised which is in excess of fair value is taxable. The amount is taxable under the head “income from other sources” and taxable under section 56(ii) of income tax act. These provisions are applicable not only to the mature companies but also to the small scale startups which took their investments from the residents of India. As a mainstream source of investment for these startups, there are these investors government is thinking of removing these tax burden from them. Investment raised from the venture capitalists and non-residents are already out of the scope of these taxes. Now, so as to give more freedom to these startups government has removed taxes on the investment received from a resident of India.