Skip to main content

Sebi lens on angels could lead to crowdfunding rules


The scrutiny of the functioning of angel networks by the Securities and Exchange Board of India (Sebi) could pave the way for crowd funding regulations.
Sebi has reportedly written to several angel networks in recent weeks, seeking details about their fund raising business and whether they operate within the contours of the securities market law.
Angel networks areakey link between the startups looking to raise money and the investors.
The capital markets regulator fears that these platforms are acting like stock exchanges and might be violating the rules of private placement by offering shares to more than 200 investors.
Some investors share Sebi´s concerns.
"Angel networks are mushrooming, and Sebi´s concerns are genuine.
There are public market processes and private placement processes.
Sebi wants to understand how these platforms are operating, and if due process is being followed, and if investor protection processes are being followed,´´ said Alok Mittal, an angel investor cumentrepreneur.
Sebi is partly concerned about how these issues are being marketed.
Typically,aprivate placement is made toadefined set of investors.
But the way these deals are sold, the process looks likeapublic issue.
The issue is offered to more than 200 investors on some platforms, even if only 50 investors eventually invest.
Many networks have hundreds of angels.
Similarly, some platforms are offering secondary deals on their platforms and have talked about creating a private exchange.
"This could have two outcomes.
If networks are in compliance, life goes on. If there are exceptions, it could lead to regulations for crowd funding, for which there has beenaclamour. This could be an exercise to understand the same," said Mittal.
Gopal Srinivasan, chairman, Indian Venture Capital Association, said Sebi wanted to know if these networks were acting as an exchange orapooling vehicle.
"It has only sought explanation; nobody is indicted," he said.
Padmaja Ruparel, cofounder, Indian Angel Network, said Sebi wanted to ensure that everyone played by the rules.
“You don´t runaventure capital fund without Sebi registration,” she said, while confirming that the regulator has written to the Network seeking clarifications, but added “it is notanotice”.
Many angel investors felt Sebi´s fears were unfounded as there were never more than 200 investors in a deal. ´´90 per cent of the process is offline.
Investors meet founders, do the due diligence, the shareholding agreement.
Angel networks in India don´t work like crowdsourcing platform AngelList where anonymous investors invest,´´ said Sanjay Mehta, an angel investor.
´´Sebi should look at angel networks as offline investment platforms and not put them in crowd funding category as they operate very differently.
We expect Sebi to ease out investing in startups than put up unnecessary impediments with compliance,´´ said Mehta.
Investors say Sebi has takenavery wide view without understanding the nuances.
Angel networks facilitate investments into unlisted startups.
Stock exchanges facilitate investments into very mature companies and after the IPO the stock is available for trading.
´´Sebi runs the risk of being seen as notsosavvy and less informed via such actions,´´ said Rehan Yar Khan, managing partner, Orios Venture Partners.
´´ These companies are much smaller, and don´t fulfil the criteria required foracompany to list. How do investors access these companies?´´ asked Khan.
Instead of preventing the facilitation of investments into these companies, he said Sebi should come up withaseparate set of norms for startups.
´´Idon´t think they should equate angel networks or platforms with exchanges.
The investors payasubscription fee (to participate in these networks), are knowledgeable and not typical retail investor that Sebi needs to protect,´´ saidKGanesh,aserial entrepreneur.
´´I don´t think there has ever been any misuse.
Sebi can issue some guidelines but at the current stage any more intervention, regulation or rules will be hampering rather than helping or protecting anyone.
Of course, this can be reviewed periodically to see if there is any misuse or loopholes,´´ he added.
The Business standard, New delhi, 09th August 2017

Comments

Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

New money laundering norms stump jewellery sector

New money laundering norms stump jewellery sector Dealers with turnover of Rs 2 crore and above covered; industry says threshold too low The central government has notified the money laundering rules for the gems and jewellery sector with immediate effect. Now, any entity deals in precious metals, precious stones, or other high-value goods and has a turnover of Rs 2 crore or more in a financial year will be covered under the Prevention of Money Laundering Act, 2002 (PMLA, 2002). The limit of Rs 2 crore would be calculated on the basis of the previous year’s turnover, said the notification. The directorate general of goods and service tax intelligence has been appointed under the Act. Sources said the government’s move to apply the PMLA to the jewellery sector was a fallout of income-tax raids on jewellers soon after demonetisation last November, when it was found that they sold gold and jewellery at a huge premium and accepted old currency notes as payment. The notification, issued on Augus…

Confusion over branded food GST

Confusion over branded food GST The GST Council's statement over the weekend on applying tax on branded food items has left most of the trade confused.

Even though the Council has not changed the rates on food -0 per cent on unbranded stuff and 5 per cent on brands -many small traders who didn't levy GST earlier said they could come under the 5 per cent slab after the clarification.

While they predicted some increase in consumer prices, large players said they can absorb GST in many ways and keep prices steady.

"Trade is confused and hence on behalf of our chamber, we have asked our members to go ahead and charge 5 per cent GST," said Sushil Sureka, general secretary of the Ahilya Chamber of Commerce and Industry in Indore.

The statement clarifying the application of GST came after some businesses were found deregistering their brands and selling under corporate brand name without paying tax, after the Council exempted unbranded food from the new all-encompassing indirec…