Introduction

Seed funds are used by startups to raise money. The government established an ‘Investment Clearance Cell’ for early-stage businesses in the Union Budget of 2020. Surprisingly, this cell provides ‘end-to-end’ investment and clearance support and facilitation at both the national and state levels.

What Is Seed Funding?

Seed funds are a type of early-stage investment that helps a potential new firm start and establish its idea/process before it generates income or requires additional funding. Any start-up company needs financial fuel, and seed investment is the initial drop.

Seed money is also known as ‘Seed Capital,’ ‘Seed Money,’ ‘Start-up Fund,’ ‘Initial Funding,’ and so on.

A start-up company requires a considerable push to establish itself in competitive marketplaces from the start. These seed investments help new businesses with R&D, product development, marketing, and other operations.

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

What Is The Benefit Of Seed Funding?

For start-ups, seed capital is extremely beneficial. The benefits of seed money are listed below.

India’s Government Has Provided Seed Funding

The Indian government listened to the voices of India’s young entrepreneurs, who expressed a desire to expand and become more powerful. For that purpose, the government has taken initiatives to support new businesses, research and development, and financial infrastructure.

The following sectors have been identified by the Government of India for seed funding. They are –

As a result, it established the (FFS) fund of financing for Startups under SIDBI to assist Indian start-ups. This FFS, established in 2016 under SIDBI, makes downstream investments in SEBI-registered venture capital (VC) funds and alternative investment funds (AIFs), that invest in companies.

Seed Funding From The Governments For The Startups

Steps To Obtain Seed Funding From (GOI) 

To obtain startup investment from the Government of India

Step 1: 

Create an account on the Startup India website and complete the certification process as outlined.

Step 2: 

After registering on the Start-up India website, the company must meet the metrics to be considered for the seed investment.

Step 3: 

Start-ups do not receive seed capital directly from the Government of India; instead, they must contact AIFs (Venture Capitalists registered under SEBI) to offer their ideas/innovations. These AIFs are SEBI-registered venture capitalists.

Step 4: 

Once the idea has been approved, the AIF will review it and make a recommendation to SIDBI to disperse the seed capital to the appropriate start-ups.

Seed Funding Repayment

While disbursing the Seed funding, SIDBI (Small Industries Development Bank of India) would provide terms and conditions as well as a repayment period.

Other Options To Acquire Seed Money From The GOI’s Start-up Action Plan Include:

Apart from the aforementioned methods, the Government of India also helps start-ups receive seed investment through the ‘Price Incentive’ plan and money competitions. In partnership with various sponsors from throughout the world, the GOI offers several tournaments (or) seminars.

Applications From The Following Categories Are Encouraged To Apply:

  1. Students (As part of a three-person team)
  2. Ideation stage startups
  3. Validation stage startups
  4. Early traction stage startups
  5. Scaling stage startups
  6. Individual Innovators

The top nominated teams/members are allowed to propose their creative ideas and concepts.

How Do You Raise Seed Money?

Previously, startup funding primarily consisted of borrowing from friends and family or possibly investing part of the firm owner’s own money. There are now numerous sources for obtaining the requisite funding, as well as numerous phases and steps involved in obtaining this funding.

These are the stages of startup funding:

Stage 1: Pre-seed Funding

  • This is also known as the bootstrapping stage because it is the first step in the funding process.
  • This stage of funding is for the startup’s early stages when the company has most likely not even started operating.
  • This initial seed funding phase is so early that it isn’t always called an initial grant phase.
  • During this stage of a startup, owners may need to stay on the job longer than necessary or get a second job to supplement their income so they can invest it in their new venture.
  • At this moment, they normally work with a fairly small staff.

Stage 2: Seed Funding Phase(Series Funding)

Series A Funding:

  • Only a few companies make it through the seed capital stage, due to the low success rate of startups becoming huge enterprises.
  • Investors, on the other hand, need more than simply a business plan from companies that make it to the series funding level. A long-term plan is required by investors.
  • Companies receive Series A funding to help them scale their product offerings.
  • Series A investment is also the level at which established venture capital firms cater to the startup’s needs.
  • As a result, angel investors who invest in seed capital play a smaller role in this round.

Series B Funding:

  • Startups that make it to the Series B round have progressed beyond the early stages of development. Companies must now meet the demand created by making their items visible.
  • The funds collected in this round will be used to expand market coverage and the size of the workforce.

Series C Investment:

  • Companies that have reached this stage of funding have already developed a viable product, a loyal user base, and a track record of success.
  • The firm will benefit from the fundraising round by being able to expand as quickly as possible.
  • At this level, the companies have already demonstrated their promise and provide a far lesser risk.
  • As a result, additional institutions, such as private equity, investment banks, and hedge funds, become involved at this stage.
  • In addition, most companies aspire for an Initial Public Offering (IPO) after this stage (IPO).

Conclusion

The many levels of startup funding in India enable entrepreneurs to scale their businesses at every stage of their business development.

This sizing process enables them to determine where their firm belongs and which possible financial experts would be willing to invest in their company to help it grow and thrive.

This scheme provides a variety of rewards to entrepreneurs who are launching new businesses.

India is a land of possibilities, and this campaign has just contributed to that. The main goal is to promote growth and assist the Indian economy is rising by allowing innovation and design to flourish like a phoenix.