“Treating an equity crowdfunding platform which is facilitating issuance of unlisted securities, as a stock exchange may not be appropriate. Under Securities Contracts (Regulation) Act, 1956, technically, any entity which assists in dealing in securities can be tagged as a ‘stock exchange’ but the application of such a wide provision has to be carefully thought through. Otherwise, any investment banker or an adviser facilitating a deal in unlisted securities (whether or not on an electronic platform) can be termed as a stock exchange,” said Tejesh Chitlangi, partner at IC Legal, a law firm which is advising some of the angel networks.
According to a Sebi official, a team set up by the regulator is examining whether such fund mobilisation is a ‘deemed public issue’. “We want to know who are the persons running these platforms, and whether these platforms are operating like exchanges; whether public issue norms are being sidestepped,” he said. Also, there are concerns whether some plat- forms are opening the doors to unscrupulous practices and alluring unsuspecting small investors, said the person.
Chitlangi agrees that companies raising money on such platforms must strictly follow the unambiguous private placement norms under the company law. “However, equity crowdfunding platform or an angel network merely acts as an arranger without regulating the actual trades or facilitating two-way quotes… also, earlystage startups are in no position to get listed. So, equating such a setup with an exchange can only harm the startup ecosystem,” he said. Instead, Sebi should notify the equity crowdfunding regulations, which never progressed beyond a consultation paper, said Chitlangi.
There are about a dozen angel networks in India, with some in existence for 7-10 years. These password protected websites can be accessed by members (paying annual fees) to know more about companies and take a call on investments.
In the coming days, these firms