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Seed Fund Capital

Seed Fund Capital

The Startup India Seed Fund Scheme (SISFS) is a flagship government initiative with the aim of solving funding challenges faced by early-stage startups in India. It provides financial assistance to startups for crucial activities such as proof of concept, prototype development, product trials, market entry, and commercialization. By supporting startups in these initial stages, the scheme helps them progress to a level where they can attract investments from angel investors, venture capitalists, or secure loans from banks.
 Types of Financial assistanceThe SISFS provides financial assistance to startups in two ways:Grant: Up to Rs. 20 lakhs for proof-of-concept validation, prototype development, or product trials, disbursed in milestone-based installments.
Investment: Up to Rs. 50 lakhs for market entry, commercialization, or scaling up, provided through convertible debentures, debt, or debt-linked instruments. 

Benefits of this program

  • Financial Assistance: Grants of up to ₹20 lakhs for proof of concept, prototype development, and product trials. Investments of up to ₹50 lakhs for market entry, commercialization, or scaling through convertible debentures, debt, or debt-linked instruments.
  • Validation and Refinement: Enables startups to validate concepts, refine prototypes, and conduct product trials, ensuring market readiness before seeking larger investments.
  • Milestone-Based Disbursements: Funding is provided in structured installments tied to specific milestones, ensuring startups remain focused and progress as planned.
  • Favorable Investment Terms:
    - Interest rate capped at the prevailing repo rate.
    - Tenure up to 60 months, with a possible moratorium of up to 12 months.
    - Unsecured investments with no collateral or guarantees required.
  • Incubation Support: Startups can gain access to a network of incubators offering:
    - Infrastructure: Physical working space and facilities.
    - Mentorship: Expert guidance on business development, marketing, and fundraising.
    - Networking: Opportunities to connect with investors, customers, and industry leaders.
    - Resources: Access to service providers and discounted professional services.
  • Enhanced Visibility and Credibility: Selection under SISFS boosts a startup's reputation, helps startup to attract further investments, partnerships, and talent.

Eligibility Criteria for Section 80-IAC Tax Exemption

Recognition and Age: Startup must be DPIIT-recognized and incorporated within the last two years from the time of application.Business Idea: Startup should have a scalable and commercially viable product or service with strong market fit.Technology Use: Must integrate technology in core business areas, including products, services, business models, distribution, or problem-solving.Sector Preference: Startups in these sectors are prioritized i.e. Social Impact, Waste/Water Management, Financial Inclusion, Education, Agriculture, Food Processing, Biotechnology, Healthcare, Energy, Mobility, Defense, Space, Railways, Oil and Gas, Textiles.Prior Funding Cap: Startup should not have received over ₹10 lakh in funding from other government schemes (excludes prize money, subsidized spaces, allowances, lab/prototyping access).Shareholding pattern: Indian promoters must hold at least 51% of the startup’s equity shares.One-Time Support: A startup can only receive seed funding once under SISFS provisions.

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Frequently Asked Questions

Seed capital is the initial, early-stage funding used to launch a startup, covering foundational expenses like market research, prototype development, and building a team. It represents the first official money raised—often from angel investors, founders, or incubators—in exchange for equity. This high-risk capital transforms a concept into a functional business.

Seed capital is often considered the first formal equity round, preceding larger "venture capital" rounds. It is distinct from angel capital, which can be smaller and used for earlier development.

Seed fundraising is the process of obtaining early capital to bolster a startup's development. A seed round is typically the first institutional round a startup will raise, following funding from friends and family, angel investors, or an incubator or accelerator program

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