Crowd funding is a method of acquiring project funding, by soliciting contributions from a large group of people typically via internet or through social networking websites like Facebook, Tumblr, LinkedIn, Twitter or crowd funding websites (Ketto, Kikstarter, GoFundMe, Crowdrise etc). The website platform acts as a mediator between the Project Initiator or Entrepreneur and crowd or investors in sourcing funds from the crowd at large. With the swift growth of the crowd funding industry, a number of associated risks also arise, which in turn have attracted the attention of securities regulators. The country presents itself as an ideal laboratory for crowd funding. It has a burgeoning but vibrant start-up culture that has spawned the growth of innovation and start-ups, which have constant funding needs. The Government too has played its part by introducing measures such as the “Start up India” initiative in January 2016 to create jobs and boost economic productivity through new businesses using modern technology.
It is essential to formulate balanced crowd funding regulations in India that lower the cost of capital and increases liquidity while ensuring adequate investor protection and minimizing investment risks. SEBI proposed guidelines in 2014, via a ‘Consultation Paper on Crowd funding in India’ for crowd funding aimed at improving access to funds for start-ups and small-to-medium enterprises.
This paper includes factors ascertaining the need for crowdfunding in India. There have been instances where the downfall of economy were witnessed which leads to the evolution of Crowdfunding in Indian markets. This paper would be dealing with the 2008 financial crisis and how it leads to justify the need of having crowdfunding mechanism in India. Likewise, it would be relevant to summarize the reasoning behind the happening of Sahara case and what all measures is necessary to take while raising fund from Investors. Further, the chapter would involve the risks and benefits for Equity Crowdfunding in India along with the possible structure of crowdfunding platforms.