Capital market regulator Sebi is expected to come out soon with crowd-funding norms to help young entrepreneurs and small groups of people raise funds.
This would provide another avenue for new-age companies to mop-up funds after Sebi approved a new alternative trading platform for Internet start-ups to tap the capital markets.
Sebi Chairman U K Sinha yesterday said the regulator is working on the crowd-funding norms and decision in this regard can be taken soon.
Crowd-funding typically involves young entrepreneurs and small groups of people raising funds for their ventures through various online platforms involving individuals and organisations.
While it is still in nascent stage in India, compared to large markets like the US, China and the UK, the trend is catching up fast especially in the wake of emergence of social media as a key platform for such activities.
The Securities and Exchange Board of India (Sebi), in June last year, had come out with draft norms on the issue.
Under the proposed norms, crowd-funding platforms can be provided by only Sebi-registered entities, while companies can raise up to Rs 10 crore in a year through this route.
Given the high-level of risks associated with this new way of fund-raising activity, Sebi had proposed that only ‘accredited investors’ be allowed to participate in crowd-funding activities.
Such investors would include institutional investors, companies, HNIs and financially-secure retail investors advised by investment advisors or portfolio managers. Besides, the crowdfunding investment of retail investors would be capped at Rs 60,000 or 10 per cent of their networth.
Also, only those entities would be allowed to raise funds through crowd-funding which are not associated with a business group having turnover of more than Rs 25 crore. Entities with an established business, already listed on an exchange or being in existence for four years or more would be barred too.
Those engaged in real estate and financial sector businesses would also be barred from tapping this route.
In India, there are no clear regulations as yet for such activities and therefore a need has been felt to put in place a regulatory framework if such platforms involve large amounts of money or issuance of securities. This will help check any money-laundering activity or other fraudulent acts in the name of ‘crowd-funding’.