The Securities and Exchange Board of India (Sebi) on Tuesday proposed new norms for “crowdfunding” or mobilisation of funds through web-based platforms and social networking sites in a bid to help start-up companies raise capital and also check misuse of such avenues.
Crowdfunding allows individuals and small businesses to raise money from pools of investors who can put money into peer-to-peer lending schemes or securities such as unlisted shares. Regulators globally have begun devising rules to oversee the nascent platform, which has emerged as an alternative way for entrepreneurs to raise capital.
The US Securities and Exchange Commission (SEC) issued draft rules for crowdfunding last October, and similar rules by Canadian regulators were issued earlier this year.
The proposed rules would allow companies to raise as much as Rs 10 crore in a year through crowdfunding platforms while limiting the maximum number of individual investors in an issue to 200. The rules would also make it mandatory for institutional investors to buy at least 5 per cent of a crowdfunded issue, while limiting maximum investment by an individual to Rs 60,000 per issue. Companies funded through such ventures would be required to make periodic disclosures to investors, though the disclosure requirements would less stringent than those for publicly-listed companies.