SEBI issued a Consultative Paper on Crowd-funding on 17 June, 2014. Crowd-funding involves raising capital from multiple investors through a web based platform or social networking website. Though there are various kinds of crowd-funding like donation crowdfunding, reward crowd-funding, peer-to peer lending, only securities crowdfunding falls within SEBI's regulatory domain. The three categories are Equity based Crowd-funding, Debt based Crowd-funding and Fund based Crowdfunding. Further, crowd-funding platforms are categorized into Class-I entities like stock exchanges with nationwide terminals and depositories, and Class-II entities like government promoted technology bus ines s incubators. Given that there is no need to list or file a prospectus with SEBI nor any requirement to pay fees to intermediaries, advertising or marketing fees, crowd-funding is less costly and cumbersome as compared to an IPO and is an innovative way to raise capital for start-ups and SMEs. To ensure that retail investors are not over-exposed to the risks of start-up ventures, participation in crowd-funding is restricted to accredited investors like Qualified Institutional Buyers, High Net-worth Individuals and retail investors who have access to investment advice and resources. However, the exit from crowd-funded securities is also restricted as there is no secondary market for investors to sell their investments. Consequently, crowdfunding securities can only be transferred to a few persons like the issuer, another accredited investor, a family member or relative or friend of the accredited investor. The restricted participation in crowd funding is primarily due to the shift in investor risk from institutional investors to retailer investors; indirect solicitation of funds by the issuer; and illiquidity due to lack of secondary markets. To check the high possibility of money-laundering, cybercrimes and fraud, issuers are allowed to raise funds through crowd-funding only through a recognized crowdfunding platform, with the approval of a screening committee, in accordance with the prescribed disclosure and due-diligence requirements. The Paper recognizes that a regulatory framework is required in India for crowd-funding, an emerging alternative funding avenue for projects which banks are reluctant to finance. However, such a framework can only be effectively implemented if punitive measures like fines or prohibition on accessing crowd-funding platforms, loss of accreditation etc. can be imposed on participants who violate the prescribed norms.