The Securities and Exchange Board of India (SEBI) has issued another warning on crowdfunding, but this time it was directed at angel investor networks and start-up funding platforms, reports Mint. In a notice to these companies, SEBI directed them to include a disclaimer which says that crowdfunding platforms are neither stock exchanges nor authorized by the capital markets regulator to solicit investments. The disclaimer should also say that the securities traded on these platforms are not traded on any regulated exchange.

The Mint report added that firms such as Venture Catalysts, Lets Venture Online, and GREX and that most of them have complied with the SEBI notice sent in late July.

SEBI is concerned that these platforms were functioning as stock exchanges and as such they were in contravention of the Securities Contract Regulation Act, 1956 (SCRO) and Companies Act. Most of the crowdfunding platforms facilitate fund raising through private placement with companies. “Only recognized stock exchanges provide a platform where equity and other securities issued by companies are listed and traded in accordance with the provisions of the SCRA,”  SEBI warned investors in September 2016.

Crowdfunding guidelines

Note that SEBI has been trying to come up with guidelines for crowdfunding since 2014. The guidelines said only accredited investors registered with a crowdfunding platform can invest in equity-based crowdfunding campaigns. Also, only Indian start-ups or SMEs can raise funds through these platforms.

Apart from the basic due diligence, these platforms will have to set up a ‘Screening Committee’ to select companies that can use these platforms. According to the proposal, crowdfunding platforms may charge a nominal fee from the company seeking funds through the platform and from the accredited investors on the platform.

SEBI is thinking of revisiting these guidelines and will keep minimum net worth criteria for investors to be eligible to invest in start-ups through such platforms, capping individual investments, and standardizing disclosure requirements, as per this Mint report.