A GAME CHANGER – STARUP INDIA SEED FUND
Do you have any idea that why most of the start-ups fail in the first two years? Yes, 21.5% of the start-ups fail in the first year itself.
Most of the innovative and unique business ideas fail to take off due to the problem of this critical investment requirement at an early stage for proof of concept, prototype development, product trials, market entry and commercialization. Seed fund will act as a fuel for these innovative business projects to get market entry and to generate early revenue.
Seed fund or seed capital or seed money is an important stage in start-up’s lifecycle as it acts as the foundation for the business’s success. The stronger is the foundation, the further the business can reach.
Starting a new business and getting it off to the ground is a big task for most of the founders and it gets even tougher with capital constraints. Seed funding helps to get things started before the business starts generating any revenue. It is a good foundation to begin the business as it provides much needed early monetary support.
Seed capital can cover everything from marketing and development, infrastructure costs as well as the costs for initial procurement. Capital is the fuel for any kind of business and seed capital is definitely the first drop of this fuel as it reduces founder risk in venture and gives access to working capital as well as business growth.
There are various sources of seed funding such as
- Corporate seed funds
- Crowd funding,
- Funds from friends & family
- Incubators
- Accelerators and many more
CAN THE STARTUP INDIA SEED FUND SCHEME BE THE TURNING POINT FOR STARTUPS?
The Start-up India initiative of the Government of India visualizes building a healthy Start-up ecosystem in the country for fostering innovation and providing opportunities to promising entrepreneurs.
On 16th Jan 2021, The Prime Minister of India declared the scheme in his Grand Plenary address of Prarambh: Start-up India International Summit. After permission of EFC and Finance Minister, the scheme has been notified on 21.01.2021.
Start-up India Seed Fund (SISFS) aims to provide monetary support to the early stage start-ups for evidence of idea, sample development and trials, market entry and commercialization. This would allow these start-ups to graduate to a level where they will be able to raise investments from angel investors or venture capitalists or look for loans from commercial banks or financial institutions
The ultimate objective of this scheme is to deliver monetary assistance to the start-ups which are in the ideation stage or an early stage. A key challenge confronted by the early stage companies is sourcing seed funding. As mentioned in the beginning of this note, most of the innovative business projects fail due to lack of financial means even to do product trials and test viability. The Venture capital funds usually take the risk of investing in a start-up of after the product trials & based on the practicality of the products.
The Start-up India Seed Fund Scheme provides a motivation to the seed funding initiative of the government. The guidelines and procedures were released after the scheme was announced in January 2021. Rs 9.25 billion (US$125 million) has been allocated by government to the scheme fund over the next four years. The scheme will benefit around 3,600 start-ups and 300 incubators.
The DPIIT (i.e. Department for Promotion of Industry and Internal Trade) has issued a set of guidelines. The scheme recognises the eligibility of the start-ups through the selection process based on detailed eligibility criteria. The startups who meet the criteria will receive the eligibility certificate from the Start-up India Team as DPIIT recognised Start-up.
The start-ups’ who are recognised under Start-up India are eligible to apply to this scheme. The scheme will benefit the start-up companies that are accepted by DPIIT, have been incorporated for less than two years and which the promotors hold more than a 51% stake.
The DPIIT team has an Expert Advisory Committee (EAC) for continuous monitoring of the scheme and execution of the same. The EAC consists of DPIIT representatives and other departments and six expert members nominated by the secretary of the DPIIT from the start-up ecosystem (i.e. Investors, experts in R &D, technology development and commercialisation) The main task of the EAC is to monitor and evaluate and select the incubators, then monitor the distribution of funds and ensure that the funds are effectively allocated and used.
The selected incubators will be responsible for the selection of the start-ups’ by following up the rules of Seed Management Committee. The qualified start-ups’ will be evaluated based on various parameters such as practicality of the idea, ease of use, potential future impact, uniqueness of the idea, utilisation plan of fund, the team strength and many more.
The funds will be channelled from Expert Advisory Committee to the incubators in milestone centred instalments with the maximum limit of Rs 50 Million. The incubators will organize for the funds to the selected start-ups’ in the milestone based instalments with maximum of Rs 2 million for validation of evidence of concept, the sample development and trials. The fund up to Rs 5 million will be given to the selected start-ups’ via convertible debentures or debt linked instruments for entry of the market and scaling up and commercialisation.
The selected start-ups’ as well as the incubators need to complete the legal agreements prior to the first instalment release. This agreement should compulsorily cover the terms and conditions of the seed fund. A welcome proposal in the guiding principle is the setting up of a grievance unit at the DPIIT to address the issues like delay in evaluation of applications or delay in disbursement of funds by any of the selected incubators. This system will ensure the effective operation at successive stages of the scheme.
This is an effort by government not only just to promote new entrepreneurs but also to make Atmanirbhar Bharat by creating robust start up ecosystem which will generate employment, and develop smaller towns.
Dev Mantra has been assisting number of early stage start-ups in getting recognised by the Start-up India as DPIIT recognised start-up and to apply for various opportunities and benefits of Start-up India such as Angel Tax exemption, Start-up India Awards, Seed Fund Scheme and any more.
We also specialise in Accounting and CFO services, Financial Advisory Services, Transaction Advisory and Secretarial services. In the past we have done number of due diligence process and helped our clients to close the deal successfully.
Feel free to contact us any time, charteredaccountants@devmantra.com
Visit our website at www.devmantra.com
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