Crowdfunding better startups
In April, the regulator proposed allowing venture capital funds to invest up to 25% of their funds in foreign companies with an Indian connection, a move that experts said would benefit many Indian start-ups that are now being incorporated outside the country, with back offices and development and delivery centres usually being housed within the country. Crowdfunding better startups
Last June, Sebi put out proposed rules on crowdfunding but limited the number of investors from whom start-ups and small companies could raise money at 200, in keeping with India’s new companies law that limits the number of investors who can be involved in a private placement exercise at that number. Crowdfunding better startups
Sebi’s proposal was an attempt to solve the funding problems of start-ups and small companies.
By sticking to the framework of the new companies law, the regulator limited the number of investors and also prohibited the companies from publicizing their efforts through ads on other media channels.
The two restrictions didn’t go down well with companies, said a person familiar with the matter who asked not to be identified. Crowdfunding better startups
The two persons said that the new crowdfunding norms could be similar to the recently amended Jumpstart Our Business Startups Act, 2012, or JOBS Act, of the US, which allows companies to publicly advertise and market their investment opportunities, of whatever size, to accredited investors, including through the Internet or social media, as well as through print, radio or television. Crowdfunding better startups
“The new companies act has several clauses that make business tougher for companies, especially in the unlisted space,” Rajiv Dadlani, a member of Mumbai Angels, a group of angel investors that invest in early- and mid-stage companies, said.
“There is an exuberance in the start-up deal space and if these clauses of the companies act are relaxed, a more vibrant start-up ecosystem can be created.”
Following a series of meetings with start-ups and merchant bankers, on 30 March, Sebi proposed in a discussion paper an easier set of rules to allow local start-ups such as software product development firms and e-commerce ventures to raise capital through listing on stock exchanges. Crowdfunding better startups
According to Sebi, “New-age companies” having an innovative business model and belonging to the knowledge-based technology sector, where no person holds 25% or more of the pre-issue share capital, may access capital through the institutional platform.
(Credits to Anirudh Laskar)
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