Which crowdfunding platform should a startup use in India, and is crowdfunding legal here?
Donation and reward crowdfunding are legal in India; selling shares to the public through a crowdfunding site is not. SEBI's press release of 30 August 2016 said equity crowdfunding platforms are neither authorised nor recognised under any securities law, because opening a private placement to everyone registered on a site breaches the Securities Contracts (Regulation) Act and the Companies Act; SEBI's 2014 consultation paper floated a framework for discussion only. Donation platforms such as Milaap, which charges 0% platform fees, work for medical and social causes rather than a business. For a product, Kickstarter accepts creators only from its listed countries, and India is not one, though it points founders to launching through a business where it operates, such as a US company set up with Stripe Atlas. The rule: for a startup, take pre-orders on your own site or raise from angels privately; keep crowdfunding sites for causes and, with a foreign entity, for products.
SEBI's press release of 30 August 2016 warning that electronic platforms raising money for companies from the public are neither authorised nor recognised under any securities-market law, since a private placement offered to everyone on a platform contravenes the Securities Contracts (Regulation) Act and the Companies Act.
SEBI's 2014 consultation paper setting out crowdfunding models (donation, reward, debt, equity) and a possible framework for startups and SMEs, put forward for discussion only.
A legal analysis of SEBI's 2016 caution, explaining why platforms that open a company's private placement to all their registered investors run against securities and company law.
Kickstarter's own eligibility page: creators must meet the requirements of one of its listed countries, which do not include India, though it suggests launching through a business set up where it operates, for example a US company via Stripe Atlas.
