The Department for Promotion of Industry and Internal Trade (DPIIT) is all set to invest in startups through incubators from April 1 under the Startup India Seed Fund Scheme and is in the process of setting up a committee to shortlist these incubators.
Announced by the Prime Minister last month, Rs 1,000-crore fund will offer startups grants and equity capital. Going forward, the government will also help startups in raising debt capital.
The dozen-odd member committee will have at least three industry representatives including investors and entrepreneurs besides government officials, the government said in a notification.
Every DPIIT-recognised startup which is not more than two years old can apply for funding. They are expected to have a business idea to develop a product or a service with market fit, viable commercialisation, and scope of scaling with technology as the core.
While the fund will remain sector-agnostic, it would give preference to startups in sectors like social impact, waste management, water management, financial inclusion, education, agriculture, food-processing, biotechnology, healthcare, energy, mobility, defence, space, railways, oil and gas, textiles, among others.
It also mandates that the startups should not have received more than Rs 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 Rs 5 crore on an instalment 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 commercialisation, 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 fund will provide up to Rs 20 lakh as grant for validation of proof of concept to the startups. This grant will be disbursed in milestone-based instalments. On the other hand, Rs 50 lakh of investment will be made for market entry or scaling up the business.
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.
“We have just been assemblers. We assemble cars, mobile phones, electronics but lack real technology. When it comes to drones, AI, cybersecurity we have no credibility at all. This has been a wake-up call. Slowly the thought process is emerging that if we don't have a science and technology-based economy we are doomed as a country. Now it has become obvious that if we do not share technology risk actually we won't make the technology innovations at all,” said Sharad Sharma, co-founder of iSPIRTFoundation.
So far, the government has recognised 41,061 startups in India.
Last year the government also banned over 250 Chinese apps including popular ones like TikTok and CamScanner following the deadly Galwan Valley clash. The absence of these widely popular apps has also created a gap and thus a huge market opportunity for te homegrown companies to fill in.