January 25, 2021

Fund-raising platforms frown at Sebi circular

Sebi circular stating that certain fund-raising digital platforms were functioning in “contravention” to the regulator’s laws has not gone down well with startups, who termed it as “one-sided, arbitrary and possibly motivated.”
In a release dated August 30, the market regulator had said, “It has come to the notice of Securities and Exchange Board of India (Sebi) that certain electronic platforms are facilitating fund-raising on digital platforms like websites, which are similar to the platforms of stock exchanges. However, these digital platforms are neither authorized nor recognized under any law governing the securities market.”
Startups like Pune-based Grex and Mumbai-based Catapooolt among others have been facilitating startups raise funds on their platform by bringing them closer to investors. Grex claimed that it does proper know-your-customer verification and due diligence before on-boarding both the startup and the investors.

“The (Sebi) instructions come as a setback to the industry that actually is looking forward to an encouraging role from the regulator. GREX which had actively engaged with Sebi over the last 6 months feels it has been let down,” said Manish Kumar, co-founder and managing director, Grex.
Startups feel it will be better if a regulatory mechanism is evolved for these platforms rather than brandishing all of them as “illegal.” A source said, “It is an area that Sebi does not have a clear jurisdiction over and this may be a reason why it is not inclined to regulate this industry.”
Sebi’s own initiative to put together a platform for startups to raise funds has all but failed to take off. The regulator also initiated a discussion on crowdfunding, but is yet to come out with its norms.
Startups said at a time when the PM has embarked on the concept of startup India such arbitrary circulars will prevent the initiative from taking off besides keeping the foreign investors at bay.
“This doesn’t make any sense….Sebi should engage into a dialogue with the fund raising platform to make it more structured and regulated. Worldwide countries are getting into deeper market mechanisms to enable crowd funding of startups. Last year, $35 billion was raised globally from various crowdfunding or digital platforms. This is the most prudent method to raise fund and allows wider participation of the diaspora and also the HNIs,” said Satish Kataria, co-founder and managing director, Catapooolt.
The government is aware of the circular and studying its ramifications. “We are taking a feedback from the startups and based on this, we will get back to Sebi,” said Shailendra Singh, joint secretary (in-charge of startups), department of industrial policy and promotions. Few startups alleged that it is common knowledge that Sebi is doing this because of the “nudge it has got from one of the bigger stock exchanges.”