Our Head of Content, Clive Reffell, caught up with the co-founder and director of CrowdInvest, Nakul Garg. It is a new cross-border equity crowdfunding platform that will begin trading in the UK in Q4 2022. Nakul is creating a win-win: through Crowdinvest, Indian tech startups with fast growth potential will offer equity directly to UK investors; UK investors will gain access via to equity crowdfunding to making early-stage investments in startups in India, the world’s third largest startup ecosystem.
CrowdInvest is a group entity of Red Ribbon Asset Management Plc, which is an Indo-British investment company established in the UK in 2007. Crowd Investments Limited is an Appointed Representative of Prospect Capital Ltd, authorised by the Financial Conduct Authority in the UK.
Hello Nakul. Let’s begin with something that many people ask. The Financial Conduct Authority, which regulates financial services firms and financial markets in the UK, has approved CrowdInvest. Particularly for anyone new to equity crowdfunding, does this mean their money is safe?
Money is safe, and we will comply with all FCA requirements and vet the startups we will host to ensure they offer viable investment opportunities. We also ensure that lead investors back the deals and that the risks borne by retail investors are shared with them. However, the failure rate of startups anywhere is notoriously high, and the success of any individual startup cannot be guaranteed. Capital invested in private companies will always incur a level of risk.
UK investors who buy shares through equity crowdfunding enjoy valuable tax advantages when they invest in privately-owned UK companies registered under the HMRC’s EIS and SEIS requirements. Why will they choose to use crowdfunding to buy equity in startups in India?
This is something we seriously thought about. Our solution is that the international startups that wish to provide EIS and SEIS tax benefits to the UK investors will be required to open a branch office in the UK to scale their operations here, and follow the HMRC guidelines on the EIS and SEIS schemes for foreign companies. By doing so, their investors will be eligible for the HMRC’s EIS and SEIS tax benefits. Interestingly, over half of the 62 of the fastest growing Indian startups chose to scale up in London. The Indian startup cell maintains an active UK-India Startup Launchpad. This is why Indian startups have chosen to open branches in UK to scale up and will continue to do so.
Also, we will onboard UK startups that are already eligible for EIS and SEIS tax benefits and wish to scale up their operations in the Indian market.
So the CrowdInvest platform will also host non-Indian startups?
In the first phase, we will focus on startups located anywhere in the world who operate in or want to scale up in the Indian market. They will principally, though not exclusively, be Indian startups. In a second phase, we will onboard investment opportunities from African and south east Asian markets and open up opportunities for investors from other parts of the world. We will truly be a cross-border platform.
Does the CrowdInvest equity crowdfunding platform have to be approved and regulated by any Indian authorities as well?
No, when we start trading, we won’t cater to Indian investors, so we are not required to be regulated by the Indian regulatory bodies. All our financial promotions will focus on UK investors using crowdfunding to back startups in India, so we need to comply with only UK laws and regulations.
What investment options will CrowdInvest provide?
In the first phase, our focus will be on equity crowdfunding and convertible loans. We will start offering other alternative financial instruments as we grow our market penetration.
How will CrowdInvest win the trust of investors?
We will make sure only vetted startups are onboarded on the platform. The vetting process will include rounds of preliminary checks and due diligence to ensure they have the required certificates, licences, intellectual property, and everything else in place per UK standards.
Other crowdfunding platforms have webinars for startup founders to pitch to potential investors and for investors to ask questions. Will you be doing the same?
Yes, we will, through panel talks, speed date sessions, virtual round tables and YouTube. CrowdInvest will also provide newsletter inclusions and social media promotions.
With the market value corrections that have taken place this year in the startup space, it has been reported that Indian startups have shed over 11,000 employees, and several are now operating at valuations lower than their IPO. Is there any feeling you may have maybe missed the peak market?
In India, Inc42 collects data and reports on the startup scene. They said a little while ago that 57 VC funds launched in 2022, 37 focus on early-stage funding. Seed stage funding in India in the first half of 2022 has been four times higher than in 2021. So whilst a market value reset has certainly taken place, many investors had already turned their attention to the higher ROI generally available from backing startups earlier in their lifecycle. This is where CrowdInvest will operate. So No, we haven’t missed out on anything.
That’s very positive to hear. We’re nearing the end of the interview. Can I ask you about your own background in crowdfunding, and what drew you to it?
I started in the crowdfunding industry three years ago and have since carved out a niche for myself in cross-border investments and fundraising in the Indian startup ecosystem.
I graduated with a Masters from the London School of Economics and gained more than eight years of experience in entrepreneurship and risk consulting, with an extensive background in business development and crowdfunding. My expertise lies in developing and maintaining strong client relationships.
I am also a recognised early-stage entrepreneur, endorsed by the LSE Entrepreneurship arm (LSE Generate) and incubated at IIM (Indian Institute of Management) Udaipur Incubation Centre. Additionally, I have worked with PricewaterhouseCoopers in Consulting and served US-based startups with their financials while working at a PCAOB registered firm (the Public Company Accounting Oversight Board).
That’s very impressive and well-rounded. A final question, if I may. Do you already have some longer-term aims for the CrowdInvest equity crowdfunding platform?
We will certainly democratise platform ownership by running our own equity crowdfunding. Our vision is to become a crowd-owned alternative investment platform operating across international borders.
Thank you, Nakul. I wish you success with crowdfunding startups in India from the UK. Thank you, Clive.