Crowdfunding In India – A Trend Gone Wrong?

Introduction

In the wake of 2008 financial crisis and the increasing skepticism of financial institutions to fund nascent business ventures, crowdfunding emerged as a feasible method of raising funds for emerging & growth stage companies in different jurisdictions. The Indian start-up ecosystem has been no exception to this alternative funding wave; rather, the trend has witnessed a massive impetus with approximately 200 early-stage companies raising about INR 3.5 billion (about USD 52 million)¹ to INR 4 billion (USD 59 million) on crowdfunding platforms over the span of past 18 months.²

Crowdfunding is the solicitation of small amount of funds from various investors through web-based platform or social networking site for a specific project, business or social cause.³ It is typically categorized into 4 kinds, donation, reward, peer-to-peer lending⁴, and equity-based. Equity-based crowdfunding is the solicitation of funds from investors by early-stage companies in