NIDHI SSP SCHEME GENERAL TERMS
While the STEP/TBI can support the “Space, Services and Knowledge” requirements of startups but, a wide gap exists in financial support required by a technology-driven start-up in its initial phase which is not being addressed properly. The basic idea of seed support is providing financial assistance to potential startups with promising ideas, innovations, and technologies. This would enable some of these incubatee startups with innovative ideas/technologies to graduate to a level where they will be able to raise investments from angel/Venture capitalists or they will reach a position to seek loans from commercial banks /financial institutions. Thus the proposed seed support disbursed by an incubator to an incubatee is positioned to act as a bridge between the development and commercialization of innovative technologies/products/services in a relatively hassle-free manner.
The sole objective of the NIDHI-Seed Support System (NIDHI-SSS) is to ensuretimely availability of the seed support to the deserving incubatee startups within anincubator, thereby enabling them to take their venture to next level and facilitate their success in the marketplace. The scheme also enables the STEP/TBI to widen their pipeline of startups and also share the success of their startups which would also result in ensuring their long-term operational sustainability.
Broad Areas to be covered under the financial assistance include:
The startups would be supported primarily on the following from the seed support
- Product development
- Testing and Trials
- Test Marketing
- Professional Consultancy (To attract professors/experts from institutions to workwith startups.)
- IPR issues
- Manpower for day-to-day operations
- Any other area as deemed necessary and recommended by the Seed SupportManagement Committee of STEP/TBIS.
Eligibility Conditions for start-ups to apply for seed support
- Incubatee should be a registered company in India
- Incubatee must be an Indian start-up. This support is not meant for Indian Subsidiaries of MNCs/foreign companies. Persons holding Overseas Citizens of India (OCI), Persons of Indian Origin (PIO) would be considered as Indian citizens for the purpose of this scheme.
- The shareholding by Indian promoters in the incubate startup should be at least 51%
Selection Criteria: Here is a list of make/break criteria for applicants:
- The applications will be reviewed by the Seed Support Management Committee (SSMC) and Investment Committee (IC)
- There must be a dedicated team in the startup
- There must be a formal business plan in place
- The product and team should be technically sound
- The startup and the team must have high ethical & professional standards
- The startup must have a strong technology/knowledge component
- The team should show potential and credibility for raising money in future
- The startup must be registered as a private limited company
- The amount of funding requested must be less than Rs 50 Lakhs
- The entrepreneur(s) must be willing to share equity in the startup
- The applicant must be or willing to be a physical incubatee of Bhau Institute before investment
Applications for the seed fund will be reviewed based on criteria such as (but not limited to):
- Is the amount of funding requested enough to reach a critical milestone?
- Does the startup have a clear, potentially significant/singular value proposition?
- How big/fast growing is the potential market?
- Are target customers clearly identified?
- How credible is the technology? (Is PoC credible in the opinion of subject-matter experts?)
- Are there regulatory/certification/policy risks?
- What are the sources of sustainable competitive advantage (e.g., novelty, patentability, etc.)?
- What is the quality of the business plan (revenue model, product roadmap, market segments, etc.)?
- The background of the founders and core team and composition of team and advisors
- Current status of the startup and duration for achieving the current status?
- Funding received from the Government and other sources of funds?
Typical terms for seed funding:
- Selected start-up should be/become a resident incubatee of Bhau Institute
- Investment mode: Equity ownership in a private limited company.
- E.g., 2% Incubator Equity and if funds are approved 50 Lakhs, with a valuation of 500 Lakhs, 10% equity will be charged on the valuation. Total 12% equity on 50 Lakhs.
- Investment amount: Up to 50 lakhs
- Equity exit will be considered within 3 to 5 years. Options for exit will be either buy-back of the shares by promoters or selling shares to the shareholders or selling them during the next round of VC investment or any other follow-on investment.
- CCPS or CCD or a combination of loan and equity-based debt instruments.
- BoD representation: 1 Board Nominee Director and/or observer of Bhau Institute
- Reporting: Bi-annual presentation to SEED Fund committee + Annual financials/MIS
- An Investment Term Sheet will be prepared with the startup eligible and selected for the scale-up fund, inclusive of the key terms like Funding Amount, Purpose of funding, Mode of Investment and terms of repayment or exit criteria, pre & post-investment cap table, RoFR, Tag along, and drag along.
- Equity will be taken on pre-money valuation and post-money
- Financial and legal/compliance due diligence will be done by Bhau Institute
- Valuation will also be done by Bhau Institute from third-party service providers
- A legal agreement (Shareholder agreement), including the term sheet details will be signed between the startup and Bhau Institute.
- Half Yearly Financial and Progress reporting to SSMC, and Annual Audited Balance Sheet reporting.