While there are fund raising vehicles like venture capital, not all startups are able to get capital via this process
India is home to as many as 4,750 plus tech startups as of December 2016 and has the third largest startups ecosystem, according to the latest NASSCOM report. Yet the innovation industry has trouble raising funds to take the business forward. .
While there are fund raising vehicles like venture capital, not all startups are able to get capital via this process. But there is one other option especially for small companies to get funding – crowdfunding platform.
However, Securities Exchange Board of India (Sebi) has been questioning the legitimacy of equity crowdfunding platforms serving start-ups and is trying to come up with measures which include—exempting crowdfunding activities from the Companies Act’s private placement norms that mandate a private company making a public offer if the number of investors is 200 or more in a year. Other measures include minimum threshold of stake purchases and prior approval for access to equity crowdfunding platforms. But all this would restrict the field to large firms and institutional investors.
In a conversation with Moneycontrol, Piyush Jain, CEO and Founder, Impact Guru, a crowdfunding platform, said, “If Sebi were to open up some of these restrictions, then it would be easier for startups to raise capital online or offline depending on where Sebi’s final position is.”
He added that startups create jobs and need a lot of capital and even in India, vast majority of venture capital funds are still funded by foreigners so there is shortage of domestic investment capital going in to domestic business.
When it comes to job creation, experts are of the opinion that startups can create as many as three lakh new employment opportunities in the next few years as the majority of job seekers are opting for such organisations. Keeping this in mind, Sebi is looking at regulating this space in an affirmative way.
Jain also gave example of US and UK where equity crowdfunding is allowed. “Startups in these countries can list on certain platforms and they can raise money after they go through a process. People can contribute as low as USD 10 or 10 pounds,” he added.
UK is the world leader in equity crowdfunding was the first one to allow it in the country.
Jain also encourages crowdfunding as an investment option for people. “People have risk taking ability as they invested in cryptocurrencies despite it being illegal in India. And that startups are better investment option.”
