To encourage young entrepreneurs to raise capital from the market, which has seen decline in such activity, regulator Sebi is planning to shortly come out with the guidelines for crowd-funding.

CONTEXT

Crowd-funding typically involves young entrepreneurs and small groups of people raising funds for their ventures through various online platforms involving individuals as well as organisations.Of late, such platforms are also being used for launching products that promise certain financial returns to the contributors. While it is still in nascent stage in India, compared to large markets like the US, China and the UK, the trend is catching up fast especially in the wake of emergence of social media as a key platform for such activities. International Organisation of Securities Commission (IOSCO), a body of market regulators across the world including Sebi, recently called for greater regulatory checks on ‘crowd-funding’ investment products to avoid any potential systemic risks in future. In the United States, crowd funding is restricted by regulations on who is allowed to fund a new business and how much they are allowed to contribute. Similar to the restrictions on hedge fund investing, these regulations are supposed to protect unsophisticated and/or non-wealthy investors from putting too much of their savings at risk. Because so many new businesses fail, their investors face a high risk of losing their principal.

REFRENCE

CROWD FUNDING: Crowd funding, where multiple investors provide small sums of money as either equity or grants. The use of small amounts of capital from a large number of individuals to finance a new business venture. Crowd funding makes use of the easy accessibility of vast networks of friends, family and colleagues through social media websites like Facebook, Twitter and LinkedIn to get the word out about a new business and attract investors. Crowd funding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists

in India, it has so far been used to fund small budget movies as well as social ventures. Some successful fund-raising campaigns include crowd funded Kannada language thriller, Lucia.

In last week of April 2014 tennis ace Yuki Bhambri and discus thrower Vikas Gowda will begin raising money on crowd funding platforms as they look to raise capital for a new season of international competition. The move has the potential to create a new robust stream of funding for sportspersons who struggle to get the attention of large companies obsessed with the glamour of cricket. The Bhambri campaign to raise Rs20 lakh kicks off on Catapooolt, a two-year old crowd funding platform while Gowda will seek funding of about Rs8 lakh from multiple investors on Ketto, cofounded by Bollywood actor Kunal Kapoor.
SEBI: The Securities and Exchange Board of India was established in the year 1988 and given statutory powers on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992. The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as
“…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”

Dr. S. A. Dave was the first chairman of SEBI and Shri U. K. Sinha, is the current Chairman of SEBI