Pune: Time was when the word startup itself was associated with risk that very few chose to take. Youngsters chose Indian Institutes of Technology (IITs) to get a great job. But it has changed. Startups are fast gaining traction in people’s minds. No longer is it seen as a drudge or a big risk that a generation ago scared most people away. Now more and more students, yes even from IITs, IIMs (Indian Institutes of Management), and medical doctors are venturing into the startup arena.
The Indian startup ecosystem in fact has grown to become the third largest in the world with close to 100,000 startup companies of which 107 are unicorns. And the government has chosen to support it in a big way by making early-stage funding available to them. In fact, the government too is supporting startups with funds. And like most things born out of the bureaucratic nest, getting the best suited is quite a challenge.
The plans
So how would you know which type of government funding plans available will cover the requirements?
Vijay Talele, who is a startup mentor, investor and former chief executive officer (CEO) of the College of Engineering Pune’s (COEP) Bhau Institute of Innovation, Entrepreneurship and Leadership, clears the air to help you choose the most suitable fund.
“Even though there has been a funding winter that continued in the first quarter of 2024, India still is the fourth largest in terms of startup funding perspective during the same period. While it has been a challenge, there has been an overall 25% increase in early-stage funding for startups. Lot of credit goes to government’s initiatives supporting startups and angel investors.
“These funding schemes are mainly implemented through TBIs (technology business incubators) set up by the DST (department of science and technology), AICs (Atal incubation centres) under an initiative of Atal Innovation Mission and TIDE (technological incubation and development of entrepreneurs) incubators under the ministry of electronics and information technology (MEITy).
“Similarly, BIRAC (Biotechnology Industry Research Assistance Council), set up by the department of biotechnology (DBT), has set up bio-incubators in India to promote biotechnology innovations. Across all these government departments, there are close to 425+ incubators across India. It is important to note that these incubators are the primary vehicles through which state and central governments implement various early-stage government schemes,” he said.
The categories
“Government funding schemes for early-stage startups are mainly divided into three categories. These include fellowships, grants and seed support. These schemes mainly bridge the gap of funding from the initial idea stage of the startup journey till the early-revenue traction stage. After which angel investors are normally interested in funding the startups. Startups that have received government funding also act as a filter for angel investors
“If an entrepreneur has an innovative idea and needs to develop a proof of concept in a lab, then fellowships are the way to go. Under the scheme, the government grants fellowships to students who have completed graduation largely for one year, wherein an entrepreneur gets a fellowship every month. Notable fellowships include DST NIDHI (National Initiative for Developing and Harnessing Innovations) fellowship under the EIR (entrepreneur-in-residence) scheme, MEITy TIDE EIR and BIRAC SIIP (Social Innovation Immersion Programme). It is expected that majority of entrepreneurs who get these fellowships should take their ideas further and their startups to the next level.
“Grants are provided mostly to startups who have developed their idea into a lab level proof-of-concept and are developing their prototypes to create a MVP (minimum viable product) for their idea, to take it to the market. DST NIDHI PRAYAS (PRomoting and Accelerating Young and ASpiring technology entrepreneurs), MEITY TIDE Grant, BIRAC schemes (BIG, SPARSH and SBIRI), DSIR PRISM (Promoting Innovations in Individuals, Start-ups and MSMEs), and recently launched SISFS (Startup India Seed Fund Scheme) from Startup India are some of the government schemes that provide the grants. These grants vary anywhere between ₹8 lakh and ₹20 lakh.
“BIRAC BIG is a grant of up to ₹50 lakh, that are implemented through eight BIG centres across India for innovations in agriculture, bio-medical devices, diagnostics, industrial biotechnology, drugs discovery, drugs delivery and stem cells. These are the schemes provided by the central government. The state governments also have grants and funding that helps startups for the development of a prototype as well as reimbursement of expenses for intellectual property (patent) filing and for testing and certifications. Seed support in the form of debt-based instruments like OCDs (optionally convertible debentures), CCD (compulsory convertible debentures), loans and equity-based funding. DST NIDHI SSS scheme, BIRAC (BIPP, SEED and LEAP) schemes, and debt base funding from Startup India Seed Fund Scheme are popular schemes for getting a seed support for the startups.
Seed support is normally in the range of ₹30- ₹40 lakh and can be given up to ₹1 crore. Seed support is normally given to startups that are at MVP stage and ready to take their product to market or already have early revenue traction.
In addition to the above government schemes from the DST, BIRAC, MEITy and Startup India, there are many schemes being provided by the government for MSMEs and some of these schemes are also implemented through SIDBI. myScheme (www.myscheme.gov.in) is one such e-marketplace for government schemes and services. Using myScheme one can find various government schemes, check their eligibility, and apply for the schemes. Similarly, (www.msme.gov.in/all-schemes-msme) has a list and details of all the schemes provided by the government for MSMEs, some of which are also applicable for the startups in early or late-stage of their startup journeys,” Talele said.
Funding by Nidhi
Tight The Nut is SaaS-enabled B2B commerce company incubated at Bhau Institute Pune and mentored also by TiE Pune. They are an Intelligent CRM and fastest B2B spares delivery platform for unorganised automotive garages to make them efficient and profitable.
Azam Shaikh, co-founder, Tight The Nut, made use of Nidhi (National Initiative for Developing and Harnessing Innovations) SSP to help his company in the growth stage. “The Nidhi scheme is an equity-based scheme that helps startups who are in the growth stage. This means that you have some traction but need funds for which you are willing to part with some equity.”
How did it work for his company?
Azam said, “We applied for funds last year. To get funded under Nidhi, first and foremost you have to be a part of some incubator. We were with Bhau. When they put out the applications you apply for and if after the first scanning of applications, they find you have potential then you are called for an interview. The incubator has to set up a committee which includes experts from different fields as well as Bhau. Here you have to prepare a report that gives clear financial details as well as the scope for growth. Then comes the stage of due diligence – financial and legal. If after this they find you are good to be invested in, they agree to give you funds. The amount of equity you get is based on the calculations of your company. And the amount you agree to give is generally less. After negotiations, both parties come to a certain percentage. It is important to note that the incubator also takes a share of this equity.”
How did this help your company?
“In the one year we have seen our revenue go up three times and the people employed by us directly by 10 and indirectly by 30. Nidhi and Bhau will receive their share when we decide to get into our next round of funding,” he said.
