DNA Money Edit: Importance of streamlining crowdfunding for start-ups

The government may soon make it easier for funds-starved start-ups to raise money through the crowdfunding route by exempting such fund-raising activities from the provisions of the Companies Act. Crowdfunding, as the name suggests, is raising money for a specific purpose through a large number of people using an online platform. It was defined as a means of raising money for a creative project or a public interest cause or a business venture, through small financial contributions from people who may number in the hundreds or thousands, as per the Securities Exchange Board of India (Sebi) in its 2014 consultation paper on crowdfunding.

The ministry of corporate affairs is now planning to bring crowdfunding under Sebi's ambit. It will invoke some sections of the Companies Act through which it can exempt companies or businesses from the Act. Since crowdfunding usually attracts several hundreds or thousands of donors who pay small amounts to fund a project or social cause, the ministry wants to do away with the restrictions of number of investors. The Companies Act limits the number of investors in a private entity to less than 50 at one go or 200 in a year. Surely, removing such restrictions will be of great help for start-ups. Angel networks that drive a significant portion of the country's early-stage start-up funding will find it easier to join this mechanism.