Based on newspaper stories and online media platform content, India appears to be very wary of crowdfunding, and ever mindful of the risks of being exploited. CrowdInvest is a new crowdfunding platform that will enable UK-based sophisticated investors to acquire equity in privately-owned India tech startups. It has been developed by the Indo-British Red Ribbon Asset Management, which specialises in investments in growth in emerging markets. It is therefore vital that we have transparent, efficient and effective due diligence procedures to reassure investors that the startups, and their business claims and projections, have been thoroughly checked and vetted.
To put this in some context let’s take a look at some recent news coverage in India that could create wariness about crowdfunding.
Crowdfunding linked to terrorist attacks
The Director-General of India’s National Investigation Agency (NIA) says it has evidence of social media platforms using crowdfunding measures to fund terror activities. This does not mean the crowdfunding platforms allow this to happen, but it is possible their reputations would be damaged by inference.
High profile scammers
NGO officials and a journalist are among the people who have been caught out when they were claiming to raise funds for good causes and then syphoned it to personal accounts.
Could crowdfunding for the treatment of children with rare diseases be illegal?
In September 2022, an Indian crowdfunding platform, which enables patients who require medical treatment to ask the general public for donations, found itself under police investigation. Advertisements for a project to raise money to treat children suffering from rare diseases showed images of children. Police authorities let it be known they were considering whether the online project and the advertising might have broken a law related to begging.
Before things went any further, the platform asked the Bombay High Court for a ruling. The outcome was that similar projects can continue to run on crowdfunding platforms, though can no longer use images of children within the crowdfunding projects themselves or in any advertising about the projects.
More medical cost fundraising negativity
In August 2022 a cardiac surgeon posted on social media that many people were raising funds that he knew were far in excess of the cost of the actual treatment or surgery they required. This was picked up by The Times of India and Hindustan Times, among other media outlets. Everyone asked where the excess money went.
Perhaps the patients opted for private medical care to skip the public healthcare waitlist? India’s private medical care is growing stronger and is on track to command a forecast 14% share of the world’s medical tourism market by 2025. The global market is expected to be worth $72 billion by then.
Some people complain that crowdfunding distorts the prioritisation of dispensing care on the equitable basis of need, but then doesn’t the existence of a private health sector do that anyway? Others complain that the growing number of crowdfunding campaigns to afford medical treatment undermines international perceptions of India’s healthcare system. Yet government health expenditure was just 3.01% of GDP in 2019, one of the lowest levels in the world, according to World Health Organization data.
CrowdInvest’s Due Diligence
Despite this higher background of relative negativity that surrounds crowdfunding in India compared to the UK, it remains an accessible and democratic way for startup businesses (in other parts of the world) to access investment funds by selling some equity in the business. In those other parts of the world, including the UK, there are investors who want to make cross-border investments to build a more widely diversified investment portfolio in response to current economic shifts.
CrowdInvest will give sophisticated UK investors opportunities to buy shares in startups in emerging markets including India, south east Asia, the Middle East and Africa. Those non-UK startups will operate according to different and less familiar procedures of business registrations, accounting practices and taxation laws. To boost confidence to invest, we have built the platform on Web 3.0 blockchain technology. This allows a more comprehensive, transparent and immutable Due Diligence procedure that covers five main aspects of Commercial, Financial, Legal, Technical and Impact analysis.
Legal and Financial Requirements
We check an extensive and comprehensive range of issues covering a business’s descriptions and claims, including the following:
- The Memorandum and Articles of Association; is the business doing what it was set up to do, and is it operating as it was intended to? CrowdInvest will provide opportunities to invest in non-UK startups, so we will have to assess these factors according to other countries’ legal equivalents of the UK requirements.
- Do audited statements show the business is in financial good health? Are there any debts, loans, existing shareholder agreements or convertible notes?
- Are contracts in place with employees, suppliers, vendors, consultants?
- Is any vital Intellectual Property covered with appropriate protection, and under the business’s own control?
- Are any and all required licences and authorisations to trade in place?
- Is access to and use of any vital property secured?
Business Plan Feasibility
Our expert advisers assess an applicant’s business plan and growth projections for an accurate and justifiable examination of internal and external factors, such as: the competition in their chosen business sector, sales patterns, their target audience, costs and profit margins, the opportunity to scale, and their impact on the environment.
Is the complete management team in place or is some further recruitment required to execute the business plan? Does the business possess or have access to any and all required technology? If they are developing their own technology, what is the plan and timescale? What would be the outcome of delays?
Environmental Impact
CrowdInvest aims to promote impact investing. It is therefore necessary to understand the impact any applicant’s business will have on the environment. We will require an understanding of each applicant’s business impact, whether intentional or not, measured against the seventeen UN Sustainable Development Goals.
An applicant can gain or lose points against each SDG while building the business’s Net Impact Score. This is not a token effort. An applicant’s Net Impact Score will count for 30% of the overall decision to carry them, or not, on CrowdInvest.
Approval or Rejection
Approved applicants will be able to progress to sign an agreement with CrowdInvest, and start interacting with our network of investors via the Private Deal Room.
Startups may be turned down for a variety of reasons. They include:
- Lack of required licences or other authorisations to operate in the appropriate territories.
- The business is at an early stage and lacks evidence of customer traction or proof of concept.
- The founder and core management team lack sufficient experience.
- The business is not from an emerging economy that CrowdInvest intends to focus on.
- The business may lack sufficient potential in terms of thin margins, low scalability, established and strong competition, and other factors.
- Red flags in the financial assessment.
- Its Net Impact Score is inadequate.
Where the reasons for any startup failing their first application can be rectified, we would like to stay in touch, provide some support, and still possibly work together in the future.
CrowdInvest will be a cross-border equity crowdfunding platform offering UK-based sophisticated investors opportunities to invest in impact-driven, high growth tech startups operating in emerging economies. You can join the waitlist today at https://www.crowdinvest.com/ to stay up to date with developments on how to be involved.
