A Study on Equity Crowd Funding as a viable option to pre-seed Capital in IT Startups

Abstract

The rapid growth in Indian economy for the next decade is expected to be sphere headed by the startup revolutiondriven by private enterprises. The growth that was witnessed in the last decade could also be largely attributed to MSME. MSME Businesses contributed more than 40% of the growth story of Indian economy. The almost double digit GDP growth achieved between the years 2003-2007 is a result of services and manufacturingsectors, taking off in a big way supported by the startup culture. The startup culture has started showing promising signal of significant contribution in Indian GDP. Particularly in the last three years the starts up fever has gripped this country and have the potential to catapult it into the planned path of economic supremacy. Angel investors, venture capitalist and private equity players in India and from the West have taken a keen interest in funding this technologically and financially viable option on a larger scale. However there exist gapsat the bottom of the pyramid where these technocrats are struggling to raise pre-seed capital which is essential to develop and test their prototype to prove their commercial viability.There exist a big gap between the demand and supply in terms of fund availability. This gap can be easily bridged with the help of popularly emerging option known as crowd funding. Crowd funding has become one of the most talked about avenues for financing of startup pre -seed capital requirement in the past. It has become very popular in the matured economies of the West, particularly in USA, where Web based platforms are emerged as reliable intermediary to bring suppliers and seekers of funds together. It has already begin in India and has provoked a healthy debate and discussion initiated by SEBI to its discussion paper. In this backdrop,crowd funding is an acceptable fund viable option for the pre-seed capital required in IT startups. This discussion proves the importance of crowd funding under regulatory framework and it has made the study not only relevant but also contemporary.