- Crowdfunding is solicitation of funds (small amount) from multiple investors through web-based platform or social networking site for specific project, business venture or social cause.
- Traditional fundraising consists of asking for a sum from limited set of sources.
- Securities and Exchange Board of India (SEBI) regulates Crowdfunding in India.
- SEBI guidelines on Crowdfunding
- Only “Accredited Investors” may invest i.e.
- Companies incorporated under Companies Act, 2013 with minimum net worth of Rs 20 crore,
- High Net Worth Individual with minimum net worth of Rs 2 crore,
- Eligible Retail Investors who have a minimum annual gross income of Rs. 10 Lacs.
- Only “Accredited Investors” may invest i.e.
- Benefits of Crowdfunding
- Promoting funding to new ideas and encourages startups.
- Increases flows of credit to Small, Medium Enterprises.
- Raising funds during natural calamities.
- Arranging money for those poor people who can't afford expenses of diseases like cancer etc.
- Risk of Crowdfunding
- Retail investors may not be able to understand risk in investing start-ups and will be unable to bear loss of investments.
- Possibility of genuine websites being used by fraudsters.
- Lack of monitoring of web based platforms leads to risk like terror financing, money laundering etc.