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CAIIB Paper 3 ABFM Module D Unit 2 : Startup Finance (New Syllabus)
IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 3 (ADVANCED CONCEPTS OF FINANCIAL MANAGEMENT) includes an important topic called “Startup Finance”. Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.
In this article, we are going to cover all the necessary details of CAIIB Paper 3 (ABFM) Module D (EMERGING BUSINESS SOLUTIONS) Unit 2 : Startup Finance, Aspirants must go through this article to better understand the topic, Startup Finance and practice using our Online Mock Test Series to strengthen their knowledge of Startup Finance. Unit 2 : Startup Finance
- Startup refers to a business that is just getting started.
- Startups are created by one or more business owners who desire to provide a good or service, they feel there is a market for.
- These businesses typically have large startup expenses and little income, which is why they seek funding from a number of sources, including venture capitalists.
- Wikipedia defines ‘a startup or start-up as a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model.
- Under the Department for Promotion of Industry and Internal Trade (DPIIT), Startup India was established to effectively handle the incentive disbursement process for new businesses.
- The Startup India Hub: offers a variety of services under Startup India, and connects aspirants to other significant ecosystem builders, launched the project in April 2016.
- “Startup India” Initiative: January 2016.
- The program’s goal is to create a strong environment for fostering innovation and startups in the nation, which will promote long-term economic growth and provide countless job possibilities.
- January 16, 2016: “Startup India Action Plan” was unveiled in order to include all these goals under a single overarching policy framework for the entire country while taking into account all facets of the startup ecosystem.
Startup Definition In India
An entity shall be considered a startup:
- Up to 5 years from the date of its incorporation/registration
- If its turnover for any of the financial year has not exceeded Rs. 25 crore
- If it is working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property
- Provided that any such entity formed by splitting up or reconstruction of a business, already in existence, shall not be considered a “Startup”.
Expanded Startup Definition
- Under the Startup India Action Plan, startups that meet the definition as prescribed under GSR Notification 127 (E), are eligible for recognition under the program.
An entity shall be considered a startup
- If it is incorporated as a private limited company (as defined in the Companies Act 2013) or registered as a partnership firm (registered under Section 59 of the Partnership Act 1932) or a limited Liability partnership (under the Limited Liability Partnership Act, 2008) in India, and
- Up to 10 years from the date of its incorporation/registration.
- If its turnover for any of the Financial Year since Incorporation/ registration has not exceeded 100 crore and
- It is working towards innovation, improvement or development of products or processes or services or if it is a scalable business with a high potential of employment generation or wealth creation.
Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered as a startup.
Challenges Faced By Startups
The main challenges, faced by startups, may be listed as under:
- Failure to plan appropriately
- Unrealistic Expectations
- Knowledge and skills gaps
- Time management and productivity
- Lack of Leadership
- Fierce Competition, lack of demand, and Ineffective marketing
- Winning Trust of Customers
- Hiring Suitable Candidates
- Partnership Decision Making.
- Financial Management
- Securing funding
- Cyber Security
State Startup Policy
- It is important for a state to have a startup policy because it provides crucial funding, mentorship, and market access support that is required by startups in order for them to grow into significant contributors to the economy of the state in terms of revenue and job creation.
- It also includes provisions to provide incentives to key startup stakeholders such as incubators and institutions of higher education, amongst others, in order to encourage the accumulated development of India’s startup ecosystem.
- Currently, 31 states out of a total of 36 have their own startup policy.
- Following the introduction of the Startup India Initiative in the year 2016, a total of 26 of these startup policies were drafted.
- There is at least one startup that has been recognised by the DPIIT operating in each of the 36 states and Union Territories.
- Each of the 623 districts has acknowledged at least one startup that has been recognised by the DPIIT.
- The pitch presentation is a slide presentation usually using either Power point or Keynote Slides in the background, that helps the entrepreneur to showcase its business and provide the reasons for which an investor should invest into the business.
- The pitch presentation came into picture in the late 1990s, during the dotcom boom.
The entrepreneur should focus on the following, while preparing slides for pitch presentation:
- The Problem Statement i.e. The issues faced by business/society
- Solutions to solve the issue
- Business Model
- The Technology used
- Business and Commercial Activity
- The Competitive Environment
- The Team Composition
- Predictions and Significant Events
- Present Status and Timelines for Execution
- Executive Summary and call for action
Pitch Deck is an intuitive, all-in-all presentation building platform exclusively for start-ups, offered by Startup India.
Programmes And Competitions for Startups
Incubator Grand Challenge
- As part of the Atal Innovation Mission’s Established Incubation Centres(EIC) programme, the Incubator Grand Challenge has been introduced as a means of recognising incubators.
- To date, Rs. 54.65 crore has been distributed to 9 different incubators through AIM’s Grants-in-Aid programme.
- As of May 2021, AIM had selected 16 incubators from around the country for the purpose of providing financial support.
- These Incubators will each receive a financial support of Rs. 10 crores, which can be used to improve the overall quality of the services that are given.
Startup India Yatra
- The Startup India Yatra programme was started with the intention of travelling across Tier 2 and Tier 3 cities in India in search of entrepreneurial talent and with the intention of assisting in the expansion of the startup ecosystem.
- Its primary objective is to identify prospective business owners living in nonmetropolitan areas and provide them with a venue in which they can pursue their dreams of running their own companies.
Rule 170(1) of GFR 2017
- There is an exemption from the requirement to submit an earnest money deposit or bid security in public procurement bids, as stated in Rule 170(1) of GFR 2017, which was updated in 2017.
- Rule 173 was notified vide GFR 2017 in order to relieve the condition of past turnover and prior experience for DPIIT recognized startups in all proposals for government tenders.
The Insolvency and Bankruptcy Code 2016
- The Insolvency and Bankruptcy legislation of 2016 provides a framework for the expeditious resolution of insolvency cases involving corporate persons, partnership firms, and individual debtors.
- The Ministry of Corporate Affairs has notified startups that they are “Fast Track Firms,” which will allow them to wind up their activities within 90 days rather than the 180 days that are required for regular enterprises.
- According to the terms of the IBC, start-up companies that have simple debt structures or that meet such conditions as may be specified, must have their operations wound down within 90 days after making an application for winding down on a fast track basis.
- In the event that this occurs, an insolvency professional will be arranged for the startup. This individual will be in charge of the company (the promoters and the management will not be permitted to run the business) for the purpose of liquidating its assets and paying its creditors within 6 months of the appointment of the insolvency professional.
- The objective of the INSPIRE “Innovation in Science Pursuit for Inspired Research” Awards-Manak, which is being run by the Department of Science and Technology (DST) in collaboration with the National Innovation Foundation – India (NIF), an autonomous body of the DST, is to encourage and inspire young people between the ages of 10 and 15 who are currently enrolled in classess six through ten.
- The program’s objective is to foster an environment that encourages youngsters to think creatively and innovatively by celebrating the planting of one million unique ideas and innovations in the fields of science and societal applications.
- From the approximately 3.2 million nominations that were received from schools, around 50,000 of the best ideas were chosen to earn a grant of Rs. 10,000/- each to be used toward the production of a project model and participation in a district-level exhibition and project competition.
National Startup Award
- In accordance with this Plan, the National Startup Award 2021 was initiated.
- The purpose of this award is to recognise and reward excellent startups and ecosystem enablers that are contributing to the economic ecosystem by stimulating innovation and injecting competition.
- This award is in the quest to recognise and reward excellent startups and ecosystem enablers.
- Startups that are developing ground-breaking technologies or solutions, businesses that are scalable and have a good chance of creating jobs or riches, and ventures that are having a measurable positive effect on society are examples of good candidates.
- The SCO (Shanghai Cooperation Organisation) Startup forum is also organised, which is a venue for the stakeholders from the Startup environment from all SCO Member states to communicate and collaborate with the purpose to promote entrepreneurship and innovation to establish knowledge exchange ecosystems and boost scaling prospects by giving solutions in the field of innovation.
- The system for incorporating a company in India was modernised in February of 2020, and as a result, the number of days required to do so has been cut in half, from 18 to 4.
- This was accomplished by decreasing the number of procedures from 10 to 3, which cut the total number of steps in half.
Women Capacity Development Programme (WING)
- The Women Capacity Development programme, often known as WING, offers training and a platform for women-led businesses as part of its capacity development efforts.
- This is done with the goal of increasing awareness of the project.
- As of May 2021, a total of 21 capacity development workshops had been carried out in 9 different states, with more than 1150 female business owners receiving benefits.
- Communications for Female Entrepreneurs, backed by Lending and Venture Funding from SIDBI Institutions are arranged by accepting applications on the “Startup India Hub,” and shortlisted women entrepreneurs are asked, after a process of screening by experts, to meet with these institutions for both equity and debt finance.
- A Virtual Incubation programme for Women Entrepreneurs was run in partnership with Zone Firms to provide unpaid acceleration support to 20 women-led technology startups for a period 3 months.
GEM Startup Runway
- GEM entrepreneurial runway has introduced a designated area for startups to set up shop and sell their wares.
- Swayatt, which stands for “Startups, women and Youth Advantage through e-transactions,” is the name of a startup runway that was recently introduced on the government market place by the Ministry of Commerce and Industry in an effort to entice more startups to participate in the Government E Market place.
- Through the Starting Runway Corner, participants in the programme will have the opportunity to engage with government purchasers and market their products and services as part of their startup businesses.
- On the other hand, the listing will only be open to companies who have been certified by the Department of promotion for Industry and Internal Trade (DPIIT).
- It will be possible for the startups to conduct market trials with the government buyers, ask for feedback that is time-bound, and gain realistic product, market valuation, and price comparison from potential buyers and investors if they sell such products and services that will be used by government departments for nearly 3 months.
- After that, if the product or service obtains at least 3 favourable evaluations, the startup will be pushed as a fulltime seller on the platform beyond the runway page.
- The government is establishing Innovation Zones at the level of Urban Local Bodies (ULBs) in order to enhance the basic level of public service delivery and governance.
- This is done in order to improve the overall quality of life for citizens and to handle local problems in the areas of sanitation, cleanliness, health, trash, water, taxation, traffic, enforcement, and any and all other facets of citizen services supplied by ULBs.
States Startup Ranking
- The States Startup Ranking was established in April 2017 with the intention of harnessing the force of competitive unionism and fostering the growth of a thriving startup ecosystem across the nation.
- The primary purpose of this study is to assess the states and territories with regard to certain intervention areas that are crucial to the development of a healthy ecosystem.
- Additionally, a States Ranking Framework has been established as part of the strategy.
- This framework raises awareness regarding the volume and scope of state-driven initiatives and encourages reciprocal learning among ecosystem players.
- The ranking framework is based on seven reform are as that are essential to the expansion of startup ecosystems.
Startup India Showcase
- The most promising new businesses to emerge from India’s startup scene are featured in the form of virtual profiles on an online discovery platform called as Startup India Showcase.
- Launched: 16th of January 2016,
There have been innovations in many different fields:
- Finance technology,
- Enterprise technology,
- Social impact technology,
- Education technology,
- Health technology,
Digital Demo Day
- The Digital Demo Day is a conference and display for new technology companies who are just getting started in Germany.
- It provides a platform for industrial tech startups, primarily in the fields of virtual reality (VR), augmented reality (AR), internet of things (IoT) cyber security, smart devices, drones, and robotics, to showcase their digital technologies for people to test out and get in touch with.
- It honours inventiveness by bringing together colleges, corporations, small and medium-sized businesses, and startups, all of which are searching for chances in digital transformation.
- A trip to Germany was taken for the purpose of exposure, and there, at the Digital Demo Day, a few entrepreneurs took part.
Animal Husbandry Startup Grand Challenge
- Initiated by: Department of Animal Husbandry and Dairying in collaboration + Startup India.
- 1st edition was released by the Prime Minister in 2019,
- 2nd edition of the same publication was released in 2021 during an event marking National Milk Day in Anand, Gujrat.
- The purpose of the competition is to encourage the development of novel and practical approaches to resolving challenges and issues that are prevalent in the animal husbandry and dairy industries.
Ayushman PMJAY Startup Grand Challenge
- Startup India + Ayushman PMJAY Startup Grand Challenge: Extending an invitation to India’s newest businesses to develop innovative solutions for the National Health Authority Support for Ayushman Bharat Jan Arogya Yojana’s efficient Implementation.
- Challenge consists of inviting startups that are primarily working in the fields of medical devices, digital health, hospital services, hospital management, health communication, medical workforce training and capacity building, and reducing the cost of operations, amongst other fields.
Textile Grand Challenge
- It is anticipated that by the year 2025, the global market for garments made from textiles will reach $1.3 trillion.
- In a similar vein, it is anticipated that the domestic market for garments will reach 59.3 billion dollars by the year 2022.
- The primary objective is to introduce innovation into the sector of concern, which will, in the long run, contribute to the industry’s expansion.
- Goal: developing a Portable Device for Water Quality Testing.
- Launched by the Department of Drinking Water and Sanitation’s National Jal Jeevan Mission (NJJM) + Department of Drinking Water and Information Technology.
- Both surface water and groundwater are used as sources of potable water in rural regions, with groundwater accounting for 80% of the total.
- However, because there is a limited amount of groundwater available, particularly in dry and semi-arid regions, there has been an increase in the consumption of surface water.
- For the purpose of ensuring that portable drinking water satisfies the requirements of BIS IS 10500: 2012(Second version) and later revisions, the standard Drinking water Quality Protocol, 2019, has set certain significant factors that need to be adhered to in order to be compliant.
MNRE Startup Grand Challenge
- Kicked off to achieve the goal of lowering carbon emissions while also ensuring energy security and access.
- The possibilities that are now available aim to investigate the potential for bigger contributions from renewable resources in the fields of livelihood, health, water, and innovation in products, services, and business models.
- The Ministry of New and Renewable Energy (MNRE) offers a one-of-a-kind opportunity for innovative businesses and entrepreneurs to solve some of the most pressing problems that the Renewable Energy Sector in India is now facing.
Startup India Single Use Plastic International Challenge
- In order to encourage inventors and startups to develop design solutions.
- To help reduce the amount of single-use plastic used in the food and beverage industry, The SUP Challenge-Goa is calling for the participation of innovative startup companies.
- Grants will be provided to the selected startups so that they can pilot their solutions with F&B Partner in Goa.
- The Prevent Waste Alliance, which is an initiative of the German Federal Ministry for economic Cooperation and Development + ECCA Family foundation, is the organisation that is providing funding for this programme, which is being executed by the Incubation Network.
- There was a total of 8 Entrepreneur Support Organizations (ESOs) that were considered for the role of running the SUP Challenge with the F&B Partner in the 5 nations of India, the Philippines, Thailand, Vietnam, and Indonesia.
The following benefits will be made available through the programme:
- Individualized guidance from seasoned professionals in the sector
- Grant funding for 10 pilots
- An exhibition of the impact of successful pilot projects
- Occasions to Establish Professional Contacts
- Seminars and online presentations
- An Opportunity for a Pilot Project with F&B Partners in Goa
As of May,2021, the following eight new research parks had been established:
- IIT Delhi
- IIT Kanpur
- IIT Gandhinagar
- IIT Mumbai
- IIT Guwahati
- IIT Kharagpur
- IIT Hyderabad
- IIsc Banglore
Single Point Registration Scheme
- Initiated by Ministry of Micro, Small, and Medium Enterprises.
- The Indian Government is the single biggest buyer of a wide variety of products.
- The Government Stores Purchase Programme was initiated in 1955-1956 with the purpose of increasing the proportion of purchases made from the micro- and small-scale business sectors.
- The Micro and Small Enterprises who wish to participate in Government Purchases must first become registered with NSIC under the Single Point Registration Scheme (SPRS).
- Under the Single Point Registration Scheme, the National Small Industries Corporation (NSIC) is willing to register any micro and small businesses that have an Udyog Aadhar Memorandum (UAM) or an EM Part – II (Optional).
- Those micro and small businesses who have begun commercial production but have not yet reached their one-year anniversary of operation are the ones that are qualified to be registered under this programme.
- Validity: 2 years, after which it will be subject to review and must be renewed.
- This review and renewal will be determined by an evaluation of the Registered Micro and Small Enterprise’s continuous Commercial and Technical Competence in manufacturing or producing.
- Micro and small enterprises that fall under the Single Point Registration umbrella and have a maximum annual revenue of Rs. 5 lacs are eligible to receive a Provisional Registration certificate.
- This certificate is valid for 1 year and can be used by businesses that have already begun commercial production but have not yet reached their first anniversary in business.
Extra Mural Research
- Extra Mural Research/Core Research Grant by Science and Engineering Research Board (SERB) under Ministry of Science and Technology is a funding scheme to educational institutions, research laboratories, and other R&D Organisations to execute basic research in all frontier regions of Science and Engineering is in the focus for more than 40 years sine from the start of SERC.
- The programme is designed to encourage both upcoming and established researchers in the fields of science and engineering to pursue individual-centric competitive financing models for their research.
- Candidates need to prove that they are citizens of India.
Section 56(2) (viib)
- Implemented by means of the Finance Act 2012 with the intention of discouraging the generation and use of unaccounted money through the subscription of shares of a closely held company at a value that is higher than the Fair Market Value of the shares of such Company.
- This was done with the intention of preventing tax evasion. According to the part that is being referred to, the total value that is greater than the fair market value is considered to constitute revenue for the company under the heading Income from Other Sources for the applicable fiscal year.
- On the basis of a self-declaration, startups have been granted an exemption from income tax under section 56(2)(viib) for the issuance of shares at a price higher than their fair market value.
- ESOPs are subject to double taxation.
- At Exercise, Perquisite = FMV – Exercise Price
- This perquisite is subject to a TDS deduction from the employer.
- This sum is reflected as Income from Salary on the Employees Form 16, which may be seen here.
- Second, when the ESOP is finally put up for sale.
- On the other hand, the tax burden at the time of Exercise was reduced in the Budget for 2020.
- by delaying the payment of taxes (on ESOPs) for a period of 5 years, or until the employee leaves the company, or until the person sells their shares, whichever comes first.
- The turnover criteria for eligible startups has been increased to Rs.100 crores from the limit of Rs.25 crores as a result of the amendment that was provided by the Finance Act in Section 80-IAC of the Income Tax Act.
- Eligible startups can claim deductions under this section for any 3 consecutive years out of 10 years beginning from the year in which such eligible startups are incorporated. This modification went into effect from April 2021.
Section 54 GB [excused from paying tax on capital gains]
- Eligible Assesses: A person or a Hindu Undivided Family (HUF)
- Asset: sale of residential property (a house or a piece of land)
These conditions include the following:
Asset to be purchased:
- The net consideration must be utilised for subscription in the equity shares of an eligible startup and company within 1 year from the date of subscription utilized for the purchase of new Plant & machinery.
- In the event of closely held companies in which there has been a significant shift in the voting power of the company, there are limitations placed on the ability to deduct business losses.
On the other hand, in the event of a qualifying startup, such losses may be carried forward if any of the two conditions outlined below are met:
- At least 51% of voting power is beneficially held by the same individuals in the year of set off of losses who held them as on the last day of the year in which loss was incurred.
- This is referred to as the “continued 51% shareholding” condition. or
- On the final day of the preceding fiscal year in which the loss was incurred, 100% of the company’s shareholders had to continue to hold the same number of shares on the final day of the preceding fiscal year in which the loss is to be set off.
- In addition, these losses need to have been incurred during the period of 7 years commencing with the year in which the company was incorporated.
Relaxation by MCA
- The Companies (Acceptance of Deposits) Rules, 2014 have been modified by the Ministry of Corporate Affairs (MCA) on September 7, 2020.
- In accordance with the notification issued by MCA, in case of a private company which is a startup
- A deposit does not include an amount of Rs. 25 lacs or more received by a startup business in a single tranche from a person, by way of a convertible note which is convertible into equity shares or repayable within 10 years from the date of issue, and
- The maximum limit in respect of deposits to be taken from members set forth in Rule3(3) of the deposit Rules(i.e. 35% of the aggregate of the paid up share capital, free reserves, and securities premium account is not applicable.
- The term “funding” refers to the sum of money that is necessary to begin and continue operating a business for the purposes of product creation, manufacturing, expansion, sales and marketing, inventory, and office spaces.
- Easy availability of finance is absolutely necessary for business owners in the early phases of a company’s development, in order to ensure its continued success.
- Once a certain amount of time has passed and there is a proof of concept, only then will funding from angel investors and venture capital firms become accessible.
- The situation is the same with loans from banks.
- As a result, it is essential to offer seed capital to new businesses that are developing novel concepts in order for them to carry out proof of concept tests.
- The Startup India Seed Fund Scheme’s primary mission is to aid new businesses in India in establishing a proof of concept, developing prototypes, breaking into new markets, conducting product tests, and going into business.
- This would make it possible for the businesses to advance to a level where they are able to solicit financial backing from angel investors or venture capitalists, as well as seek loans from commercial banks or other financial institutions.
- The seed and proof of concept development stages of the Indian startup ecosystem are plagued by insufficient funding.
- At this level in the game, the funding is absolutely essential for the startup, and it may make or break the company for entrepreneurs that have great business ideas.
The following are the eligibility requirements that a startup must meet in order to submit an application for the Startup India Seed Fund Scheme:
- The startup must already be recognised by DPIIT, and it must not have been incorporated for more than 2 years at the time of the application.
- The company that is just getting started has to have an idea for a business that will allow them to build a product or service that is suitable for the market, can be successfully commercialised, and has room to grow.
- In order to solve the issues that are the focus of the startup’s efforts, the company’s primary product or service, as well as its business strategy, distribution model, or methodology, should make use of technology.
- New businesses that are making an innovative effect in a variety of industries, including social impact, waste management, financial inclusion, education, agriculture, food processing, biotechnology, the health sector, energy, defence, transportation, space, trains, oil and gas, and textiles.
- The startup company cannot have received more than 10 million rupees in financial help from any other programme offered by the central or state governments.
- The prize money from competitions and grand challenges, subsidised working space, founder monthly allowance, access to labs, and access to prototyping facility are not included in this.
- In accordance with the Companies Act of 2013 and the SEBI (ICDR) Regulations of 2018 [last amended as on April 2022], India-based promoters must own at least 51% of the company’s shares before submitting an application to the incubator for the scheme.
The following is a list of the requirements that must be met for an incubator to be eligible to apply for funding from the Startup India Seed Fund Scheme:
- The incubator must be a recognised legal entity, such as a society that has been registered under the Societies Registration Act of 1860, a trust that has been registered under the Indian Trust Act of 1882, a limited liability company that has been registered under the Companies Act of 1956 or the Companies Act of 2013, or a statutory body that has been established by an act of legislature.
- It must have been operational for a period of at least 2 years prior to the date of application
- The bare minimum requirement is that it should have the capacity to seat 25 people.
- As of the date of application, that particular incubator must have at least 5 start-up companies actively participating in the incubation process.
In the event that neither the central nor the state government is providing assistance to the incubator, then the incubator in question must satisfy the following conditions:
- Active for a minimum of 3 years, should have submitted audited annual report for a minimum of 2 years, and additionally, at least 10 startups must be physically undergoing incubation in the incubator on the date of application.
- It is necessary for it to meet any extra criteria that may be stipulated by the Experts Advisory Committee.
The following individuals will participate as members of the EAC Committee:
- Representative of NITI Aayog
- Financial Advisor
- Additional Secretary/ Joint Secretary/ Director/ Deputy Secretary
- Representative of Department of Science and Technology
- Representative of Department of Biotechnology
- Representative of Indian Council of Agricultural Research
- Representative of Ministry of Electronics and Information Technology
- Secretary, DPIIT from the Startup Ecosystem; nominated 3 expert members, investors, specialists in the domain of R&D, Technology development and commercialization entrepreneurship and other relevant domains.
- A grant of up to 5 crore Indian Rupees will be granted to a shortlisted incubator on a milestone-based basis in 3 or more instalments;
- The money should only be used by the incubator to make payments to qualified new businesses; it should not be used to build new facilities or pay for any other expenses.
- As part of the management fees, 0.5% of the seed fund award will be allocated to the incubator as a component of the management fees; however, the incubator is prohibited from using these management fees to pay for the construction of facilities or any other administrative costs.
- Utilised for selecting the beneficiary startup, conducting due diligence, paying administrative expenses, and monitoring the beneficiary firm’s success.
Selection of Startups
Each of the incubators that submits an application for the Startup India Seed Fund Scheme, will be required to form a committee comprised of industry professionals who are qualified to evaluate and choose entrepreneurs to receive seed funding.
Members of the following groups will make up the ISMC:
- Representative from State Government’s Startup Nodal Team
- Representative of a venture Capital Fund or Angel Network
- Nominee of Incubator
- A domain expert from Academia
- Two successful Entrepreneurs
- A domain expert from Industry
- Any other relevant Stakeholder
Utilisation and Accounting of Funds
- The business incubator – keep a separate trust and retention account that is dedicated solely to a particular project at any nationalised bank.
- According to the terms of this plan, the monies will be distributed in three or more instalments, depending on the milestone.
- Any net return obtained from the beneficiary startup may be put toward additional investing in the beneficiary startup.
- In the event that there is no further funding of startups using this money, for a period of 3 years the monies are to be returned to DPIIT.
- Each incubator is required to provide a report for each fiscal year detailing the monies that have been approved, received, and disbursed to each startup.
- The incubator is obligated to provide a comprehensive report on the status of the utilisation of funds as well as audited expenditures for each and every fiscal year.
Successful Implementation Indicators
The following criteria must be met by incubators for all beneficiary startups, and these criteria must be recorded.
- The status of the proof-of-concept phase
- The status of the prototype development phase
- The status of the product development phase
- The status of the field testing phase
- The degree to which the market launch is progressing
- The amount of funding obtained from angel investors, loans, or venture capital
- The number of jobs created by startups
- The Turnover Rate of New Businesses
- Any suitable parameter not mentioned earlier
Those startups that have been shortlisted must provide the incubator with specifics on the aforementioned criteria in every progress report.
The same information will be supplied in real time by the incubator to Startup India via their online Dashboards, and it would be presented quarterly to EAC.
The incubator is responsible for reporting the return on each individual investment made in a startup, and an appropriate matrix may be developed for this purpose.
Types Of Financing
- Borrowing: From a lender, paying that money back with interest within a predetermined amount of time, and adhering to the deadlines that have been established for the payback of the loan.
- Lender: Does not have any influence over the company, and in order to secure financing, the fledgling company can be required to submit some form of collateral.
- Through: Banking institutions, non-banking financial institutions, government loan programmes, and other similar avenues
- It comprises selling equity shares of the company in exchange for the capital that was provided.
- Startups are required to share ownership in the company, even though they are not required to offer collateral for the same.
- Possible to acquire it through: Angel investors, venture capitalists, crowd funding incubators and accelerators, as well as from one’s own family and friends through self-financing.
- A grant is an incentive, typically financial, that is granted by one organisation to another organisation in order to promote the achievement of a goal or to encourage superior performance.
- A grant does not call for any sort of payback of the monies.
- The disbursement of grants occurs in stages, with each one contingent on the previous one having been successfully completed.
- In the case of a grant, the investor will not receive any return on their investment.
- In most cases, grants can be obtained from the Central Government, the State Government, Corporate Challenges, or grant programmes run by private entities.
Stages of Startups and Sources of Funding
- Idea Phase
- Seed Stage
- Series A Stage
- Exit Options
Process to Startup Fund Raising
- Determining whether or not money is required
- Assessing the need for funding
- Assessing Investment Readiness
- Preparation of Pitch deck/presentation
- Investor Targeting
- Due diligence by Interested Investor
- Term Sheet
The new company needs to design a plan that is based on milestones and includes specific timetables for the things it wants to accomplish in the future years.
Investors’ Outlook In Startups
- Objective and Problem Solving
- Management and Team
- Market Landscape
- Scalability and Sustainability
- Customers and Suppliers
- Competitive Analysis
- Sales and Marketing
- Financial Assessment
- Exit Avenues
Funding Schemes and Programmes
SIDBI Funds of Funds Scheme
Established by: Government of India
Fund value: Rs. 10,000 crore
Goals: increasing the amount of available capital, stimulating private investment, and ultimately fostering the expansion of the Indian startup ecosystem.
- The money was originally intended to be used as a fund of capital for new businesses.
- In June 2016, it was proposed by the cabinet, and shortly thereafter, it was founded by the Department for the Promotion of Industry and Internal Trade (DPIIT).
- Capital is provided by FFS [Fund of Fund Scheme] to SEBI-registered alternative investment funds, often known as daughter funds, so that these funds can make further investments in startup companies.
- Because of this, the fund of funds does not make direct investments in the new businesses.
- The selection of daughter funds and the monitoring of the distribution of committed money are both tasks that fall under the purview of SIDBI as it carries out its duties to manage the FFS.
- Throughout the many stages of a startup’s lifespan, the fund of funds is utilised to supply the necessary funding.
- As of 31March 2022, SIDBI had committed Rs. 7,225.45 crore to 86 AIFs further 1541.79 crore has been distributed to 51 AIFs.
- A total of Rs. 9,408 crore has been invested in startups by AIFs under FFS to boost 582 startups.
The indicative process is as below for considering applications under
- Corpus: 500 crore per year for the next 4 years has been launched
- Purpose: Making it simpler for early-stage entrepreneurs to secure funding.
- The total amount of money available through the Credit Guarantee Scheme for new businesses is Rs. 2,000 crore.
- Its goal is to provide coverage of guarantee for about 15,000 crores for 3,000 startups, with the average loan amount to eligible borrowers being 5 crore.
Startup India Seed Fund Scheme
- launched by: Department for Promotion of Industry and Internal Trade (DPIIT) on 19th April 2021
- Amount: Estimate of Rs. 945 crore to provide funding to startups for proof of concept, product trials, prototype development, commercialisation and market entry.
- These would allow the startups to reach the maturity level to raise investments from angel investors or venture capitalist or seek loans from financial institutions or commercialised banks.
- The scheme will provide handholding to 3600 entrepreneurs through 300 incubators in the coming 4 years from 2021.
- The scheme was announced by the Prime Minister in January 2021 in his Address of Prarambh: Start-up India International Summit.
- DPIIT has constituted Expert Advisory Committee to assess and select the incubators.
- These Incubators will then constitute Incubator Seed Management Committee to assess, select and observe startups.
- As on 16th March 2022, the Startup India Seed Fund Scheme (SISFS) has received more than 140 incubator applications, out of which 76 incubators have been selected by the EAC, and more than Rs. 290 crores have been approved to them.
Startup India Global Venture
- Startup India Global Venture is held every year by the DPIIT in order to mobilise Global Capital for Innovation in India.
- It will assemble many representatives of leading Global Venture Capital Firms, Limited Partners, Family Offices, High Network Individuals, Government of India Officials and Top Corporates.
- The 2022 Global Venture Capital session was conducted on 16th January, 2022 with the aim to mobilize domestic and global capital for Indian startups.
- The roundtable witnessed participation from 75 key industry leads and investors from Indian and Global ecosystems representing north of USD 30 billion Assets Under Management.
Venture Capital Assistance Scheme
- Purpose: To provide eligible projects with monetary assistance in the form of an interest-free loan from SFAC [Small Farmers’ Agribusiness Consortium] in order to make up for any shortfall in the capital requirements for the successful execution of the project.
- Through: Financial participation, it is possible to facilitate agricultural entrepreneurs’ investments in the establishment of agribusinesses.
- Administered by: Ministry of Agriculture and Farmers Welfare
- Also offers assistance in the development of bankable Detailed Project Reports (DPRs) by means of the project Development Facility.
- Farmers, producer groups, partnership or proprietary firms, self-help organisations, companies, units in agri export zones, arbitrageurs, and agriculture graduates can submit the application on their own or in groups for the purpose of setting up agribusiness ventures.
- Encourage innovation, recognise the value and capabilities of global intellectual property, and encapsulate opportunities for growth in the ICTE sector,
- Goals: Support for International Patent Protection in Electronics and Information Technology (SIP-EIT) programme.
- Run by: The Ministry of Electronics and Information Technology.
- To provide financial support to MSMEs and technology startups so that they can file international patents.
- The applicant must fulfil the investment restrictions in plant and machinery or equipment that are specified in the MSME Development Act 2006 of the Government of India.
- Additionally, the applicant must be registered as a company under the Companies Act of the Government of India.
Start-up India for Financing SC/ST and/or Women Entrepreneurs
- Start-up Small Industries Development Bank of India makes arrangements for bank loans ranging from 10 lakhs to 1 crore to be Applicant at least one borrower belonging to a scheduled caste or scheduled tribe, or at least one woman,
- Purpose: Establishing a greenfield business in India.
- A manufacturing firm, a trading concern, or a service concern could make up the enterprise.
- In the case of businesses that are not run by individuals, at least 51% of the company’s shareholdings and the controlling stake need to be owned by either a person from a historically oppressed group or a woman.
- Minimum age: 18 years old for the SC/ST or female entrepreneur.
- Greenfield refers to an enterprise that is the beneficiary’s first foray into the manufacturing, commercial, or service industries.
Biotechnology Ignition grant
- By: The Biotechnology Industry Research Assistance Council
- Purpose: to provide financial support for the numerous innovative concepts that have not yet satisfied the requirement for mentorship and funding.
- Made available to scientist entrepreneurs working in research institutes, academic institutions, and startups.
- Eligibility: Applicant must either be an incubatee or have a registered firm that already possesses an R&D laboratory that is operational.
- Designed to improve the commercialization of scientific findings by awarding funding at an early stage in the development process.
- These grants are intended to help bridge the gap that exists between discovery and creation.
Technology Development Fund
Carried out by: DRDO on behalf of the Ministry of Defence
To meet the requirements of the Tri-services, Defence production, and DRDO.
Purpose: To encourage the participation of public and private industries, particularly micro, small, and medium-sized enterprises (MSMEs), in order to establish an atmosphere conducive to the development of cutting-edge technological capabilities for use in defence applications through the incorporation of a research and development culture in industry.
The following are the criteria that must be met to be eligible:
- Public limited companies, private limited companies, partnership firms, limited liability partnerships, one-person companies, and sole proprietorships that are registered in accordance with applicable Indian laws.
- An Indian citizen who resides in India and who owns at least 51% of the company’s shares in order to exercise ownership and control over the business.
- Micro, Small, and Medium-Sized Businesses (MSMEs) and Startups Registered in India. To the extent that it does not exceed 90% of the overall cost of the project, funding will be considered for projects with costs of up to Rs. 10 crore.
High Risk High Reward Research by Science and Engineering Research Board (SERB)
- Run by: The Department of Science and Technology
- Purpose: Provides assistance and encourages the submission of novel ideas and proposals that are anticipated to have a significant impact on the field of science and technology.
- This programme provides funding for high-risk projects with the potential for high rewards.
- Primary objective: To provide assistance to proposals that are conceptually novel and precarious;
- If they are fortunate and successful, it is anticipated that they will have a transformative effect on the scientific and technological community. This may take the form of the formulation of new hypotheses or the achievement of scientific discoveries that facilitate the development of new technologies.
- Eligibility: applicant [Individual or Group] needs to be a citizen of India and have a permanent academic or research job at an organisation that has been acknowledged.
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