Crowdfunding for startups in India: where is it going?
By Raghev Hegde
While it is becoming better known, crowdfunding is yet to take India by storm, in part due to its youth and in part because of various legal and regulatory hurdles. Despite this, some beneficiaries of crowdfunding have already captured the public imagination – none more so than the brilliant, self-taught innovator Sonam Wangchuk.
Wangchuk is a household name in India as he was played by one of India’s biggest stars Aamir Khan in the super hit Bollywood movie “3 Idiots”. As a college dropout in a society obsessed with degrees, Wangchuk was laughed out by almost all the banks he approached for a loan to finance his innovations, despite being one of the smartest men in the country.
Rather than give up on his dreams, Wangchuk did something no other Indian tech entrepreneur had done before – used the power of crowdfunding to seek investment from ordinary men and women all over the world. This helped him raise $120,000 for his new company, which has since gone from strength to strength.
This is a wonderful story and crowdfunding in India needs more of them. Crowdfunding is still in its infancy in the country, and is generally used to raise funds for art exhibitions and charities, but it is being taken seriously by market experts as well. Here’s what Vallabh Bhansali of Enam Securities, one of India’s greatest investors, says about crowdfunding in India:
“Some of the most amazing entrepreneurs have gone into the field of nation building and if you can use the capital market mechanism of mobilizing resources for them you know that through crowdfunding will be the ultimate innovation for them.”
What augurs well for crowdfunding in the country is that the social media has taken India by storm, aided by the widespread use of smartphones. This has not only made people more aware of crowdfunding, but also made it easier for individuals and businesses to raise funds, with some smart social media marketing.
As recently as in March this year, the first Indian Crowdfunding Conference was held at the Indian School of Business in Hyderabad, where many distinguished business leaders, entrepreneurs, academics and investors spoke. Some of them are big names in the international crowdfunding scene, such as Barry E. James of TheCrowdfundingCentre.com, Dan Marom, a top Israeli crowdfunding expert and Professor Jaideep Prabhu from Cambridge Judge Business School.
The event was a definite success and attracted scores of visitors, including a lot of young and ambitious entrepreneurs, very enthusiastic about the opportunities offered to them by crowdfunding. It was also decided at the conference to start an organization to act as a lobbyist, if you will, for the growth of crowdfunding in India, in the same way as NASSCOM lobbies for the IT industry in the country.
And that is how the Centre for Alternative Finance India was established, with some of the biggest names in crowdfunding in India and abroad as its primary members. As the founders of the new organization say, “India has the fastest growing startup scene with 800 new startups launched every year. And with a “crowd” of over 1.25 billion people, it is the largest democracy on earth, making it perhaps the country that could potentially benefit the most from alternative finance solutions.”
The Centre for Alternative Finance India has the following goals and objectives:
- Assess and quantify the current status of the alternative finance market in India
- Develop knowledge and understanding of crowdfunding patterns and behaviour in India
- Identify and describe key issues/challenges to the development of crowdfunding in India
- Analyze compare and recommend methods to accelerate the development of crowdfunding policy and practice
These are highly laudable goals, and one of the first tasks for the Centre for Alternative Finance India would be to convince SEBI, India’s capital market regulator, to make things a little less difficult for crowdfunding in India. It is fervently hoped that SEBI would soon come out with more crowdfunding-friendly norms, geared to encourage young entrepreneurs and small groups of people to raise funds this way.
SEBI released a consultation paper on equity crowdfunding back in July 2014. Some reports had indicated that the SEBI was deferring action on law changes citing the lack of similar regulation in other jurisdictions and the complexities of cross-border investments. A SEBI advisory panel has been set up to examine the issues, however. More recently SEBI Chairman U K Sinha has stated that the regulator was working on friendlier crowdfunding norms and decision on this is planned soon.
I had written back in 2014 about how crowdfunding in India could really take off only if SEBI took the initiative and made it easier for entrepreneurs to raise equity through crowdfunding. Equity-based crowdfunding platforms are still not allowed in India, which is a real shame as far as industry is concerned.
The only hope is that Prime Minister Narendra Modi, who is India’s first business-friendly leader, takes cognizance of the situation and makes things easier for young entrepreneurs in the country. After all, the cornerstone of Mr. Modi’s government is the “Make in India” initiative, which aims to encourage entrepreneurship in India. Well, young entrepreneurs need access to capital, and the best way to get that is through crowdfunding.