For many entrepreneurs, the first big hurdle is not the idea, but the lack of money to prove it can work. Most investors want to see a product or concept that has already shown results. This often leaves young startups stuck — unable to raise funds, yet needing those funds to move forward.
To bridge that gap, the Department for Promotion of Industry and Internal Trade (DPIIT) launched the Startup India Seed Fund Scheme (SISFS). It is designed to help startups take their earliest steps — from testing an idea, building a prototype, and running trials, to entering the market and scaling up.
The scheme is sector-agnostic and runs through a network of approved incubators. With an allocation of ₹945 crore, it aims to support around 3,600 entrepreneurs across 300 incubators. By focusing on this critical stage, it hopes to give ideas the breathing space to grow into viable businesses, create jobs, and add to India’s economic momentum.
Startup India Seed Fund Scheme
At its core, the SISFS is about timing. A startup might have an excellent idea, but without proof it works, large investors rarely come forward. This scheme steps in exactly at that point.
Any sector can apply — whether it’s renewable energy, medical devices, food technology, or even emerging fields like space tech. The funds are released through incubators, which means startups also get mentoring, workspaces, and networking opportunities alongside the money.
This model is not entirely new. Several states had already been running their own seed funding programs. As of December 2020, 18 states had helped over 1,300 startups. In the most successful state, more than 400 startups — almost one-third of all beneficiaries — received support. The SISFS takes this concept national, creating a consistent and structured way for early-stage businesses to access resources.
Eligibility Criteria for Startups
To qualify for the scheme, a startup must meet certain conditions:
- Recognition and incorporation date: It must be recognized by DPIIT and not be older than two years from the date of application.
- Business potential: The idea should target a real market, have a clear path to commercialization, and the potential to scale.
- Technology use: The product, service, or business model must have technology at its core — whether in the offering itself, the way it is delivered, or the way it solves the identified problem.
- Preferred sectors: While open to all sectors, priority goes to startups in social impact, waste and water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defense, space, railways, oil and gas, and textiles.
- Funding history: It should not have received more than ₹10 lakh from any central or state scheme. This limit excludes competition prize money, subsidized office space, founder allowances, access to labs, or use of prototyping facilities.
- Ownership: At least 51% of shares should be held by Indian promoters, as per the Companies Act, 2013 and SEBI regulations.
These checks ensure that the scheme targets genuinely early-stage ventures that can benefit most from the push.
Eligibility Criteria for Incubators
Since incubators are the ones actually disbursing the funds, their selection is just as important. They must:
- Be a legally registered entity — this could be a society, trust, private limited company, or statutory body.
- Have been operational for at least two years (three if they have not received government support).
- Be able to seat at least 25 individuals.
- Have at least five startups in physical incubation.
- Have a full-time CEO with proven business development or entrepreneurship experience, supported by a qualified team of mentors.
- Not use third-party private money for seed funding.
- If not government-assisted, have at least 10 physically incubated startups and audited annual reports for the past two years.
- Meet any additional requirements set by the Experts Advisory Committee (EAC).
By setting these standards, the scheme ensures that the incubators themselves can provide the right guidance and structure, not just a cheque.
Disbursement Guidelines
Funding is offered in two main ways:
- Grants: Up to ₹20 lakh for proof of concept, prototype development, or product trials. These are released in instalments linked to specific milestones, such as completing a prototype or preparing for a market launch.
- Investments: Up to ₹50 lakh for market entry, commercialization, or scaling. These are provided as convertible debentures, debt, or debt-linked instruments.
A startup can access both types of support once. For debt funding, the interest rate cannot exceed the prevailing repo rate. The repayment period can go up to five years, with an optional moratorium of up to one year. No collateral or personal guarantee is required, making it easier for founders to take the leap.
To maintain balance, no more than 20% of the total grant to an incubator can be passed on as grants to startups. Any unused funds or interest earned on them are adjusted in the next release.
Evaluation Process
Applying is straightforward but competitive. Startups submit applications through the Startup India portal, choosing up to three incubators in order of preference.
Once received, the applications are screened for factors like:
- How feasible the idea is
- The potential impact on the market or society
- Uniqueness of the solution
- How the funds will be used
- Quality of the presentation
The final decision rests with the Incubator Seed Management Committee (ISMC), which includes:
- The incubator’s nominee (as Chairman)
- A representative from the state’s startup nodal team
- A venture capital or angel network representative
- One industry expert and one academic expert
- Two successful entrepreneurs
- Any other relevant stakeholders
The ISMC is expected to make a decision within 45 days of receiving the application. They also continue monitoring the startup’s performance and approving future fund releases.
Obligations of Startups
With funding comes accountability. Startups that receive support under SISFS must:
- Check in with their incubator every two weeks through a meeting or video call.
- Share monthly updates on the official dashboard.
- Use grants only for proof of concept, prototype development, or product trials.
- Use debt or convertible debentures for market entry, commercialization, or scaling.
- Submit progress updates, utilization certificates, and, at the end, a final report.
- If the venture fails, provide a candid report explaining why, along with what was learned.
The rules are clear on ethics too — incubators and their staff cannot charge any fee, whether cash or kind, for selection, disbursement, or monitoring. A dedicated grievance cell at DPIIT handles complaints such as delays in evaluations or fund transfers.
Final Thoughts
The Startup India Seed Fund Scheme is a carefully designed lifeline for businesses that are just starting out. It recognises that at the seed stage, money is not the only challenge — guidance, validation, and structure are equally critical. By linking funding to incubators, the scheme ensures that startups get more than capital; they get an environment that helps them refine and grow their ideas.
In an ecosystem where many bright concepts die before reaching the prototype stage, initiatives like this could mean the difference between a great idea fading away and that same idea becoming the next success story in India’s startup landscape.
