In news:

• Startup India Seed Fund Scheme (SISFS) has been approved for the period of next four years starting from 2021-22.

 

Seed Fund Scheme

• The scheme aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization.
• 945 Crore corpus will be divided over the next 4 years for providing seed funding to eligible startups through eligible incubators across India.
• The scheme is expected to support about 3600 startups.

 

What is Seed Funding?

• Seed funding or seed-stage funding is a very early investment which aims at helping a business grow and generating its own capital.
• Also referred to as seed money or seed capital, investors often get an equity stake in exchange for the capital invested.
• The investors can themselves be the founders and use their savings as seed money for their new company — also known as bootstrapping.

 

Why Seed Funding matters?

• It is a fact that starting a new business and lifting it up off the ground is a huge ask for most entrepreneurs and it only gets tougher with capital constraints.
• Seed funding helps get things started before the business earns any revenue.
• It is an effective solution for startups and growing businesses as it provides the much-needed early monetary support.
• It can cover everything from infrastructure costs, marketing and development costs as well as the cost of initial hiring. Investment is the fuel of any business and seed funding is the first drop of this fuel.
• As seed money becomes much-needed cash reserve or working capital, not having it is one of the main reasons for failure.

 

Various options for Seed Funding

• Crowdfunding
• Corporate seed funds
• Incubators Accelerators
• Angel investors
• Personal Savings
• VC Funding
• Angel Funds or Angel Networks

What are Startups?

• A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable economic model.
• While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend to become registered, startups refer to new businesses that intend to grow large beyond the solo founder.
• At the beginning, startups face high uncertainty and have high rates of failure, but a minority of them does go on to be successful and influential.  Some startups become unicorns.

 

Why do we need start-ups?

• (1) Employment Generation: Entrepreneurship creates more avenues for new job in the economy. This would help harness the readily available employment in our country. This mission will reduce the burden from service and agricultural sector and enables condition of balance in economy.
• (2) Creation of Wealth: Since entrepreneurs are attracting investors by investing their own resources, the people of the nation would get benefit when startups grow. Since the money is sharing with the society, wealth is creating within the nation.
• (3) Better standard of living:Startups can implement innovations and technologies to improve the living of people. There are many startups who are working for rural areas to develop the community.
• (4) Economic growth: GDP plays a vital role in enhancing the economic growth of a country. By supporting and encouraging more startups, it is possible to generate more revenue domestically and consumer’s capital will also flow around the Indian economy.
• (5) Source for FDI:It has been noted that in recent years, the volume of foreign investments made in the Indian startup is quite huge. The foreign investments in the startups act as an easy capital raise and technological investment for the startups which makes them readily accept the investments coming towards them.
• (6) Culture of Entrepreneurship: Startups encourage a culture of entrepreneurship and innovation which leads to create new job opportunities and provide support to the economy. Success stories motivate talented youth to start their own ventures and help them to become a job provider instead of a job seeker.
• (7) Advancement in technology: Startups are more focused on new technologies and cutting-edge innovation. Free from a multilayered corporate bureaucracy, startups are more agile and able to build an idea into a product and improve it upon consumer demand with faster decision-making communications.

Startup India Scheme

 

• Startup India is an initiative of the Government of India.
• The campaign was first announced by PM Modi during his speech on 15 August 2015 address from the Red Fort.
• The action plan for this initiative is focusing on three areas:
• Simplification and Handholding.
• Funding Support and Incentives.
• Industry-Academia Partnership and Incubation.
• An additional area relating to this initiative is to discard restrictive States Government policies within this domain, such as License Raj, Land Permissions, Foreign Investment Proposals, and Environmental Clearances.
• It was organized by the Department for promotion of industry and internal trade (DPI&IT).

 

Various initiatives by the Govt.

There are numerous government initiatives to assist start-ups,

• MUDRA Scheme: Through this scheme, start-ups get loans from the banks to set up, grow and stabilize their businesses.
• SETU (Self-Employment and Talent Utilization) Fund: Government has allotted Rs 1,000 Cr in order to create opportunities for self-employment and new jobs mainly in technology-driven domains.
• E-Biz Portal: Government launched e-biz portal, India’s first government to business portal that integrates 14 regulatory permissions and licenses at one source to enable faster clearances and improve the ease of doing business in India.
• Credit Guarantee Fund: launched by the GoI to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme.
• Fund of Funds for Start-ups (FFS): 10,000 Rs corpus fund established in line with the Start-up India action plan under Small Industries Development Bank of India (SIDBI) for extending support to Start-ups.
• Tax Sops: Tax exemption on Capital gain tax, Removal of Angel tax, Tax exemption for 3 years and Tax exemption in investment above Fair Market Value.