What Is Seed Funding? Cheque Sizes, Instruments and Rules in India

Seed funding is the money that takes a start-up from a working prototype to proof that customers will pay. The median Indian seed cheque in January–June 2026 was USD 1 million, paid for with equity shares, compulsorily convertible preference shares, iSAFE notes or convertible notes. The government's ₹945 crore Seed Fund Scheme is fully committed, so its money now reaches only start-ups whose incubator still has funds left.

What seed money is for

Seed money pays for the stretch between a working prototype and a business that a Series A fund will price. It covers the first hires, the first city launch and the data investors will ask for next. Founders usually give up equity, which is a share of ownership, in return.

The stage before it is pre-seed. Bengaluru resale marketplace Circle shows the step up. It raised ₹3.4 crore in a pre-seed round led by Titan Capital in November 2025, with more than 17,000 users at the time.^[7] On 15 October 2026 it raised ₹25 crore in seed funding led by Nexus Venture Partners, after about ₹25 crore of pre-owned sales in its first year.^[8]

That is roughly seven times the earlier round. The jump came with proof: repeat buyers, listings and sales numbers that a fund could check.

How big a seed cheque is in 2026

Seed funding grew in the first half of 2026 while the total fell. Indian start-ups raised USD 5.2 billion across 501 deals in that period, 9% less than a year earlier. Seed funding rose 18% to USD 478 million even as the number of seed deals dipped slightly.^[1] The median seed ticket held at USD 1 million, roughly ₹9.5 crore.

Government and incubator money comes in much smaller pieces. The table sets the main routes side by side.

The instruments: CCPS, iSAFE and convertible notes

Compulsorily convertible preference shares

Compulsorily convertible preference shares, or CCPS, rank ahead of ordinary shares and must turn into equity shares later. Indian foreign-investment rules count a preference share as equity only if it is fully, compulsorily and mandatorily convertible. Anything else counts as a debt instrument and sits outside those rules.^[3]

The rule matters if a foreign fund joins the round. The conversion price cannot be lower than the fair value worked out when the shares are issued.^[3] Founders therefore need a valuation report before the money lands.

iSAFE notes

The iSAFE, short for India Simple Agreement for Future Equity, was introduced by 100X.VC in July 2019. It is issued as CCPS, so it sits in the books as share capital, not debt.^[12] It converts at the next priced round, a merger, an acquisition or a dissolution, or three years after issue, whichever comes first. Versions exist with a valuation cap, a discount, both, or a most-favoured-nation clause.^[12]

An iSAFE suits a small round where founder and investor do not want to argue over valuation yet. The price is set later, by the next investor.

Convertible notes

A convertible note starts as a loan and turns into shares later. Only a private company recognised as a start-up by DPIIT, the Department for Promotion of Industry and Internal Trade, can issue one.^[13] Under the deposit rules, money from one person of ₹25 lakh or more in a single tranche is not a deposit if it converts or is repaid within ten years. A 7 September 2020 amendment raised that window from five years.^[2]

Foreign investors follow the same ten-year, ₹25 lakh test. Citizens and entities of Pakistan and Bangladesh are excluded. A start-up in a sector that needs government approval for foreign money needs that approval for notes too.^[3] Two cheques of ₹12.5 lakh do not qualify.

Government seed money: where the Seed Fund Scheme stands

The Startup India Seed Fund Scheme pays start-ups through incubators, not directly. Incubators selected by an expert committee receive up to ₹5 crore each and pass it on.^[10] The scheme's terms are tight on purpose.

Divide ₹605 crore by 3,400 start-ups and the average approval is about ₹18 lakh. Grants are the smaller part: an incubator may hand out no more than 20% of its scheme money as grants, and the rest is meant for convertible debentures or debt.^[10] With the corpus committed, a new applicant depends on an incubator that still has unallocated funds. Ask the incubator before you apply.

The next pool of government money flows through funds rather than incubators. The Startup India Fund of Funds 2.0 was notified on 13 April 2026 with ₹10,000 crore. One of its priorities is early-growth start-ups backed by smaller SEBI-registered funds, with SIDBI as the first implementing agency.^[14] Under the first fund of funds, over 135 funds received more than ₹7,000 crore and invested over ₹26,900 crore in more than 1,420 start-ups.^[4]

Two 2026 seed rounds, read through company records

Company filings show how young seed companies are and how little of the round shows up as share capital.

Fixxly

Fixxly is a quick-commerce start-up for building materials. It raised USD 5.5 million (₹52.6 crore) in seed funding from Accel, Fireside Ventures and Lightspeed India Partners, announced on 29 July 2026. Co-founder Shezan Bhojani earlier co-founded DesignCafe. Commercial launch in Bengaluru was set for 1 September 2026.^[15]

The worked example is in the dates. Fixxly announced its seed round 72 days after incorporation and before it had launched. The investors were backing founders and a plan, not revenue. Paid-up capital counts only the face value of shares, which is why ₹52.6 crore of funding sits beside a few lakh of capital.

Circle

Circle's founders, Ankit Misra and Chirag Kataruka, are the directors of two Karnataka companies in The Company Check's records. Zercle Recom Innovation Private Limited was incorporated on 14 May 2025 with ₹1.23 lakh of paid-up capital. Its deal record carries the ₹3.4 crore pre-seed round of 18 November 2025 from Titan Capital and Raveen Sastry.^[17] Loopit Innovation Private Limited followed on 24 May 2026 with ₹1 lakh of paid-up capital.^[18]

The October 2026 seed round brought in ₹25 crore, with Titan Capital and Myntra co-founder Raveen Sastry following on from the pre-seed round.^[8] The report does not say which of the two companies issued the new shares.

The lesson for investors is to match the brand to the legal entity before wiring money. When founders run more than one company, check the CIN, the directors and the date of incorporation on the share subscription agreement.

Tax and paperwork after the 2024 changes

Until 2024, a private company that issued shares to a resident investor above fair market value could be taxed on the excess. The Union Budget of 23 July 2024 proposed to abolish this "angel tax" for all classes of investors.^[19] The Finance (No. 2) Bill, 2024 then amended section 56(2)(viib) so that it does not apply from assessment year 2025-26.^[5] Valuation still matters for foreign investors, whose pricing rules sit under foreign exchange law.^[3]

DPIIT recognition is the gateway to convertible notes and the Seed Fund Scheme. A notification of 4 February 2026 replaced the 2019 definition. A start-up is now an entity up to ten years old with turnover not above ₹200 crore in any year. Recognised deep-tech start-ups qualify for 20 years and up to ₹300 crore, and cooperative societies can now be recognised.^[6]

Demand for recognition is rising. More than 55,200 entities were recognised in 2025-26, 51.6% more than a year earlier, taking the total past 2.23 lakh by 31 March 2026.^[4]

What to do before you raise seed money

1. Get DPIIT recognition first. Without it there is no convertible note and no Seed Fund Scheme support.
2. Pick the instrument by investor. A single angel at ₹10–20 lakh fits an iSAFE better than a note, which needs ₹25 lakh per tranche.
3. Price foreign money with a valuation report dated before allotment.
4. Check each investor's records. Look up the fund's legal entity, its directors or partners and its past cheques on The Company Check before signing a term sheet.
5. Keep the round small enough to hit milestones that a Series A fund will price: repeat customers, revenue per user, cost to acquire a customer.