SEBI to come up with norms for crowdfunding soon

The Securities and Exchange Board of India (Sebi) will soon be finalising norms for  crowdfunding channel, Mint reported quoting two people who are aware of the development.

Norms and regulations around crowdfunding were first examined in 2014, nothing was finalised after that year. The regulator is now considering allowing large firms and institutional investors to fund money via this channel, ask such investors to take prior nod from it before getting access to such platforms, and relax disclosure norms so that information is shared only with investors and not the public at large.

The regulator cum watchdog would also set a floor for transactions with a minimum threshold of stake purchases and at the same time ensure no single investor (through these platforms) owns more than 25% of the investee firm.

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 recognised 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 also often dictate the terms of their businesses and restrict the entry of other potential large investors in the funding plan for growth," sources told Mint.

In August last year, Sebi had questioned the legitimacy of equity crowdfunding platforms serving start-ups 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, the regulator 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.

Source further believe that 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, and the shareholding pattern will be minimal, while the access to the crowdfunding platforms may be protected by a password, according to reports.