Startups raise funding in the form of seed funds. What is this seed fund? How do new businesses benefit? Let's find out.
In the Union Budget of 2020, the government set up an ‘Investment Clearance Cell’ for early-stage startups. Interestingly, this cell offers ‘end-to-end’ support and facilitation for investment and clearance on both centre and state levels.
What Is Seed funding?
- Seed funding is an initial stage investment that helps a potentially new business begin and establish its idea/process before the company starts generating revenues or until further investment is required.
- Investment is monetary fuel to any start-up company and seed funding is the first drop of it.
- Seed funding is also known as ‘Seed Capital’ (or) ‘Seed Money’ (or) ‘Start-up Fund’ (or) ‘Initial Funding’ etc.
As shown in the graph above, a start-up company requires a significant push to establish itself in competitive markets at the outset. These seed funds assist start-ups in funding R&D, product development, market promotion, and other activities.
Different Types of Seed funding
- Crowdfunding
- Corporate Seed funding
- Incubators
- Accelerators
- Angel Investors
- Bootstrapping (Personal funding)
- Debt funding
- Venture Capital funding
- Angel funds or Angel Investors
Seed Funding from the Government of India
The central government heard the voice of India’s young entrepreneurs, their hunger and eagerness to grow larger and more powerful. To that end, the government has taken steps to boost start-ups, R&D, and financial infrastructure.
The GOI has so far recognized the following sector for the seed funding. They are –
Accordingly, it set up the (FFS) fund of fundraising for Startups under SIDBI to extend its support to Indian start-ups. This FFS, set up in 2016 under SIDBI, makes downstream investment in venture capital (VC) funds and AIF’s (Alternate Investment funds) registered under SEBI, which further invest in startups.
How Start-ups Get Seed Funding from the GOI
To get the seed funding from the GOI
Step 1:
Register on the Startup India portal and get certified as per the process listed.
Step 2:
Once registered on the Start-up India Website, the start-up should satisfy the metrics to be considered to get the seed fund.
Step 3:
Start-ups do not get seed funds directly from GOI, it will get seed from the AIF’s (Venture Capitalist registered under SEBI) Hence, start-up companies have to approach the AIF’s for presenting their Ideas/Innovation. These AIF’s are Venture Capitalist registered under SEBI
Step 4:
Once the idea is approved, the AIF will analyze and recommend to SIDBI to disburse the said seed fund to such start-ups.
Repayment of Seed funding
SIDBI (Small Industries Development Bank of India) while disbursing the Seed funding, will provide for terms and conditions & tenure for the repayment of the Seed funding. Down below you can peruse an overview of the seed funding trends over the years.
| Financial Year | Government Seed fund Corpus | No. of Start-ups got the benefit |
| 2015-16 | 500 Crore |
A total of 243 Start-ups received Seed funding from GOI. |
| 2016-17 | 100 Crore | |
| 2017-18 | 1,150 Crore | |
| 2018-19 | 1,115 Crore | |
| 2019-20 | 431 Crore | |
| 2020-2021 | 1,054 Crore | |
| 2021-2022 |
Other ways of getting seed funds from GOI’s start-up action plan:
Apart from the aforementioned manners, the GOI also assists start-ups in obtaining seed funding in india through ‘Price Incentive’ scheme and money contests. The GOI organises these contests (or) workshops in collaboration with various sponsors from around the world.
Application form following categories is welcomed:
- Students (As a team of 3 Members)
- Ideation stage startups
- Validation stage startups
- Early traction stage startups
- Scaling stage startups
- Individual Innovators
An opportunity is given to the top shortlisted teams/members in order for them to present their innovative ideas and concepts. The best ideas will be chosen, and the government will provide seed funding/pricing.
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