Sebi likely to legalise crowdfunding soon
MUMBAI: Three years after first examining how it can regulate crowdfunding, the Securities and Exchange Board of India (Sebi) is closer to finalising norms for this funding channel, said two people aware of the development.
The regulator is considering allowing large firms and institutional investors to fund money through this channel, ask such investors to take prior approval from it before getting access to such platforms and relax disclosure norms such that information is shared only with investors and not the public at large.
That’s not all. The regulator will set a floor for transactions with a minimum threshold of stake purchases and at the same time ensure that no single investor (through these platforms) owns more than 25% of the investee firm, these people said.
Sebi might exempt crowdfunding activities from the private placement norms of the Companies Act as well, which require a private company to compulsorily make a public offer and list the securities on a recognized stock exchange if the number of investors is 200 or more in a year.
“The idea is to help genuine, high-growth-potential entrepreneurial activities with a wider access to fund raising and not only a select set of angel investors, who may be providing finance to such companies but often dictate the terms of their businesses and restrict the entry of other potential large investors in the funding plan for growth,” the first person said cited earlier.
An email sent to Sebi about the norms went unanswered.
In August last year, Sebi questioned the legitimacy of equity crowdfunding platforms serving startups in an investor-caution note. It had said these digital platforms are “neither authorised nor recognised under any law governing the securities market.” Earlier this month, it formed a committee on Financial and Regulatory Technologies (CFRT) and crowdfunding is one of the key areas that it is looking to cover with the help of the committee’s recommendations.
According to the people cited earlier, Sebi may also ask companies to secure an approval from all the shareholders for any material corporate decision. Such a decision will also be required to be disclosed to Sebi mandatorily.
The existing crowdfunding platforms can continue to operate and once Sebi norms are in place, the disclosures with regards to the company’s business, the profile of investors, the shareholding pattern will be minimal, while the access to the crowdfunding platforms may be protected by a password, said the second person cited earlier.