DARE - Because Entrepreneurs Do

By Satish Kataria,

In what could be watershed day in the history of evolution of new funding and support platforms for start-ups and early stage ventures across the world – today, the US House of Representatives 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.

Possible Impact in India

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.

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. Furthermore – we would be closely studying the regulatory framework which has been adopted in US and would attempt to bring similar fraud-prevention checks in our revised crowd-funding model, which is getting launched soon.

In a country where still only about 40-60 early stage ventures are able to close investors every year – crowd-funding could definitely be a potent tool in identification of new investors and largely – employing the power of young community to come forward and fund new entrepreneurial dreams and more importantly create new jobs.

Globally there are more than 70 crowd-funding platforms – but surprisingly we are the only structured players in India so far. Crowd-funding typically assists start-ups in very early stages – when they seek funding in the range of USD 25,000 – 1,00,000 : and actually can become  a strong alternative to just depending on friends & family : besides also becoming a then strong deal source for other start-up enablers. It may also be noted that currently – not many start up enablers and angel networks in country look at funding at such early stage.

We do hope that crowd-funding gets its approval of stamp in India also – and thus open way to enable hundreds of new entrepreneurs find a way to put their dreams in practice and also generate jobs.

(Satish Kataria is the Managing Director of Springboard Ventures – which operates India’s first and only crowdfunding platform for start-ups in strategic association with Grow VC International.)

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