India moves towards financing its startup ecosystem

In January 2021, addressing ‘Prarambh: Startup India International Summit,’ Prime Minister Narendra Modi announced an INR 1000 crore Startup India Seed Fund indicating the government’s policy to continue its support to boost the startup ecosystem in India. For quite some time now, the Indian Govt leadership has been aiming to reap benefits in employment generation. Innovation and research, and entrepreneurship. 

In line with its aim, the government has demonstrated its desire by simplifying the registration process for startups and facilitating easy access to venture capital funds and loans. More importantly, startups are being provided with a tax exemption for three years and the 2021 union budget provides an exemption for another year. Much of the effort is directed towards easing compliances for early startups, giving startups freedom to choose their investors in addition to a convenient exit policy for startups. 

Apart from these moves, since the initiation of the ‘Startup India, Stand Up India’ in 2016 aimed at encouraging the startup ecosystem in the country, the construction of seven research parks has also been mandated by the government. These parks which will provide research facilities by highly trained professionals who hold PhD and Master degrees will be set up at prominent science & tech institutions including the Indian Institute of Technology (IIT) in Delhi, Gandhinagar, Kanpur, Kharagpur, Guwahati, Hyderabad, Gandhinagar, and Indian Institute of Science (IISc) in Bangalore. The government has allocated over INR 100 crore for each of these research parks and while there is an emphasis on tech-related startups, biotech is another sector where startups are being encouraged. Multiple bio clusters, bio incubators, technology transfer offices will be set up across India and a biotech equity fund is being set up to promote investment in research.

Biotech Equity Fund 

Under the Biotechnology Industry Research Assistance Council (BIRAC) Accelerating Entrepreneurs (AcE) fund national and global equity funds will be dispersed to young startups engaged in the biotech. Called the ‘fund of funds,’ the AcE intends to handhold first-time entrepreneurs by connecting venture capitalists and future stakeholders. AcE fund has been created exclusively for biotech startups and its funds are registered by the Securities and Exchange Board of India (SEBI) which are aimed at augmenting innovation and research in this sector. 

The AcE fund is mandated to provide a startup capital of INR 7 crore against equity and will make a maximum capital commitment of up to INR 30 crore. A significant portion of AcE daughter fund is meant for biotech/life sciences sector. Bharat Innovation Fund, Gujarat Venture Finance Limited, Stake Boat Capital, Indian Angel Network, Kitven Fund are some of the AcE fund partners. 

The Startup India Seed Fund (SISFS) however has been a major development that signifies the government’s intent.

Startup India Seed Fund Scheme

The fund aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market return and commercialization. This fund is aimed at transforming the nascent startups with help of venture capitals and angel investors. Further, this seed fund will be delivered through an eligible incubator. However, only those startups which are recognized by the Department of Promotion of Industry and Internal Trade (DPIIT) and are incorporated not more than two years ago are eligible. Additionally, the shareholding of Indian promoters should be 51% at the time of application for the incubator. Several key sectors have been identified including social impact, waste management, defense, space, railways, oil and gas, agriculture, financial inclusion, mobility, amongst others. 

Technology Incubation and Development of Entrepreneurs (TIDE 2.0) 

Tide scheme is specifically designed to provide financial and technical support to early technology startups in seven pre-identified areas of relevance including Artificial Intelligence (AI), Block-Chain, Robotics, etc. Under this scheme, 2000 tech-based startups will be empowered through 51 incubators over a period of 5 years. 

The TIDE scheme further supports 27 centres at academic institutions that will work with Angel Investors, Venture Capitalists, who would provide mentorship and finances to early startups for a period of 2 to 3 years. TIDE centers are divided into three groups having diversified aims ranging from mentoring, capacity building, and investment for startups and aspiring students, entrepreneurs. 

Stand Up India

On April 2016, the Stand Up India program aimed at encouraging startups in the sector of greenfield technology. Under the Stand Up India program bank loans between INR 10 lakhs and 1 crore to at least one Scheduled Caste (SC) or Scheduled Tribe (ST). Enterprises could be in the manufacturing, services, or trading sectors. However, Start-Up India loans are only available in the greenfield project, and in the case of non-individual enterprises, 51 percent of the shareholding and controlling stake should be held by SC/ST and a women entrepreneur. 

The Start Up India provides a composite loan of 75 percent of the project cost inclusive of term loan and working capital. The rate of interest for this loan is set as the lowest applicable and not exceed (base rate (MCLR) + 3 percent + tenor premium). The maximum moratorium period for loan repayment is set for 18 months. Also, a working capital limit of up to INR 10 lakh may be sanctioned. 

National Initiative for Developing and Harnessing Innovations (NIDHI)

With a corpus loan of INR 10 crore is an ambitious scheme of the Department of Science and Technology. Under the NIDHI scheme, financial assistance will be provided to potential startups through incubators to bridge the gap between the development of an idea and its commercialization. With time, the fund intends to raise startups to an extent where they can secure funding from Venture capitalists. Some areas that are to be coved under the fund include product development, testing, and trial, mentoring, Intellectual Property Rights (IPR) issues.

Apart from these Government of India (GOI) initiatives, there are several state government-sponsored schemes. For instance, Gujarat’s Department of Education has conceived a Student Startup and Innovation Policy (SSIP). Similarly, Gujarat’s Industrial Policy 2015 initiated a scheme for assistance for startups/innovations up to INR 21.4 lakhs. Other states like Kerala and Maharashtra have also dedicated programs for funding, nurturing startups indicating a growing desire to incentivize innovation. The overall trend in the country seems to be towards encouraging entrepreneurship with the end goal of generating employment and national progress.