The Securities and Exchange Board of India (Sebi) has written to LinkedIn Corp. asking if its social networking service provides a platform for people or start-ups to raise money publicly in violation of the Companies Act, according to two people aware of the development. LinkedIn has said it is not involved in any activities related to securities markets.
LinkedIn, which has at least 42 million users in India, has several angel investors and other similar funding groups which claim to be able and willing to help any registered LinkedIn member with money to fund entrepreneurial activities.
These include groups with names such as “Startups and Entrepreneurs Get Funded” (62,396 members) and “Global Investment Network” (44,005 members).
“LinkedIn’s vision is to create economic opportunity for the entire global workforce. We can confirm that LinkedIn is not engaged in any activities associated with the securities market,” said Deepa Sapatnekar, head of communications for LinkedIn India.
Sebi’s concern stems from the fact that the number of investors funding any entrepreneurial activity through LinkedIn could easily cross 200. Under existing private placement norms of the Companies Act, no entity can raise investments from more than 200 investors without making a public issue of the securities offered in lieu of such investments and listing such securities on a recognized stock exchange.
A few weeks ago, the market regulator wrote to LinkedIn asking about the controls it has employed or a monitoring mechanism that it can put in place to ensure that private placement norms are not breached on the networking platform, said one of the two persons.
This person said the India team of LinkedIn is in touch with the market regulator to address its concerns.
“For practical reasons, these online networks can be used by companies/start-ups to solicit funding from practically millions of registered users. So a founder of a company can be a part of such groups and propose detailed funding proposals in the group, which can be broadcast to all the members within a second. In comparison to professional and dedicated Indian online funding platforms, LinkedIn and Facebook have enormous reach,” said an angel investor on condition of anonymity.
The market regulator has been active in recent weeks in addressing grey areas in fundraising. On 8 August, The Economic Times reported that Sebi has written to at least half-a-dozen angel investing firms, asking for details of their fundraising business and whether they operate within the contours of the securities market law.
In August last year, Sebi had questioned the legitimacy of equity crowd-funding platforms serving start-ups in a note. It said these digital platforms were “neither authorized nor recognized under any law governing the securities market”.
On 2 August, Sebi formed a 10-member panel on financial and regulatory technologies, headed by Manipal Global Education chairman T.V. Mohandas Pai, to examine trends related to fin-tech in the securities market worldwide and advise the regulator on opportunities and challenges.