Startup Crowd Funding Gets Legalised in US. Is India ready for it?

In what could be the major turning point in the history of evolution of new funding and support platforms for start-ups and early stage ventures across the world, the US House of Representatives on 2nd November 2011 passed the ‘Entrepreneurs Access to Capital Act’. This makes it easier for businesses to raise funds through ‘Crowd Funding’. The legislation will now allow start-ups to use ‘Crowd Funding’ to sell unregistered securities as long as the total amount raised is USD 2 Million or less. The Bill also restricts individual investment in crowd-funded securities to USD 10,000 or 10% of investor’s annual income – whichever is less. President Barack Obama also endorsed this bill and mentioned that this will hence reduce “the red tape that prevents many rapidly growing startup companies from raising much-needed capital.”

The Entrepreneur Access to Capital Act “combines the best of microfinance with the power of crowd sourcing,” said bill sponsor Republican Representative Patrick McHenry, of North Carolina. This enables ordinary Americans, not just wealthy accredited investors, to own “a stake in their favorite businesses”- maybe “even the next Facebook,” McHenry said.

While there will be no immediate impact in India, as the regulations for Crowd Funding are still not defined – but for sure it sets a benchmark and could finally open new avenues of funding support for hundreds of entrepreneurs in the country – wherein the support for early stage ventures is still nascent.

Satish Kataria, Managing Director of Springboard Ventures – who manage India’s first and only crowdfunding platform for start-ups in strategic association with Grow VC, said, “This is definitely an authoritative acknowledgement to the growing influence, effectiveness and success of crowd-funding as a new mean to assist start-ups and early stage ventures. While we in India have been making submissions to various regulatory bodies and in absence of any clear rules – have been extremely prudent on various practices being adopted on our platform – this development definitely gives us more strength in our quest to reinvigorate the start up ecosystem in the country.”