mahindra group finance crowdfunding strategy

Mahindra War Room 2015 Group-wide Finance Caselet

MAHINDRA GROUP FINANCE: CROWDFUNDING STRATEGY CASELET

Mahindra Group’s federal structure comprises independent companies across 18 different lines of businesses from Aerospace to Retail, supported by Group-wide Corporate, Brand, Strategy and HR functions among others. The Group functions and the sector functions work in sync with each other to realise the objectives of both the Group and the individual businesses. This caselet is offered by the the Group-wide Finance team.

BACKGROUND

Mahindra Group’s Corporate Finance team actively supports Mahindra Group companies by providing support in core corporate finance activities such as Forex Management, capital market fund raising, credit ratings, project evaluation, channel funding, Fund management, Forging banking relationships etc. among others. Group Corporate Finance follows the brand pillar of alternative thinking in the way it supports businesses. Some of the major accolades in their journey is Issuance of a 50 year unsecured bond, AAA rating from all major rating agencies for Mahindra Group and also building financial capabilities through its Mahindra Finance Academy.

With the rapid growth of the Internet, Crowdfunding has gained increasing popularity. Commonly defined as “an Internet enabled way for businesses or other organizations to raise money in the form of either donations or investments from multiple individuals”, this new form of capital formation was catalysed by the 2008 financial crisis, owing to the difficulties faced by artisans, entrepreneurs and early-stage enterprises in raising funds.

Crowdfunding began as an online extension of the traditional method of raising finances from near and dear ones - friends and family. Communities began pooling money to fund members with business ideas. In less than a decade, crowdfunding has gained traction in a number of developed economies, including Australia, the United Kingdom, the Netherlands, Italy, and the United States, rapidly spreading across the developed world. This concept is now attracting considerable interest in the developing world as well. According to Rong360, an online financial product search service, there were 116 crowdfunding platforms in China at the end of 2014, up from 78 a year ago, raising USD. 148 million. Of these, 27 are equity crowdfunding sites. JD and Alibaba have surpassed all independent crowdfunding sites to become the biggest and the second biggest respectively, in terms of backers. JD attracted 627,000 backers pledging USD.

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24 Million for 238 projects in 6 months post-launch. Taobao crowdfunding got 458,000 backers raising USD. 12 million for 410 projects in 2014.

LIVE CHALLENGE: MAHINDRA GROUP CROWDFUNDING STRATEGY

India’s business and entrepreneurship has a long history of funding through family and friends. Today’s behemoths such as Reliance and Infosys reportedly started with capital raised from friends and family, while there are informal networks of specific communities funding their business ventures - for example, it is said that a native community from Karnataka, traditionally, in the business of running restaurants, support restaurant entrepreneurs among them through community funding.

From a management standpoint, Crowdfunding can be understood to be of the following types: 1. Donation CrowdFunding, where funds are solicited without exchanging anything of

tangible value.2. Reward CrowdFunding, where the investors receive some existing or future tangible

reward.3. Peer-to-Peer Lending, where a platform matches lenders and investors with

borrowers and issuers, to provide unsecured loans at an interest rate set by the platform

4. Equity Crowd Funding, where equity shares of a company are issued in consideration of the funds solicited from investors.

Crowdfunding has fired the imagination of people worldwide, wherein the public at large encourage entrepreneurial freedom by investing as angels, spreading the risks and rewards in the process. Start-ups seem to prefer crowd funding over other sources, as there are no strings attached, and funds are available at a lower transaction cost compared to institutional funding. What should the Mahindra Group do about the Crowdfunding opportunity? From an equity capital point of view, How can a large federal structure with strong reputation like Mahindra think beyond the conventional sources of funding such as the market, private equity, venture capital, Mutual funds and other forms of institutional funding? How can private funds be accessed, and through what format? Should Mahindra Group resort to different class of shares like in the West? Should there be a specialised exchange for this? How can crowdfunding opportunities be extended to employees and key business associates within the existing regulation? If changes are required in this legislation, what are the key ones? How can the interests of investor protection be balanced with encouraging



entrepreneurial freedom? Should FDI be allowed in Crowdfunding? What should be the format for Peer-to-peer lending - should it be securities or loan - if it is securities, what type of securities with what covenants should be put in place? Should there be a separate bankruptcy code for this, and what should it cover?What sort of an IT platform can be an enabler, and what would be its basic architecture? For a Group like Mahindra, what should be extent of involvement of the Promoters? What are the regulatory and compliance challenges that Mahindra should be wary of? Can Crowdfunding be used even in existing businesses such as Automotive to launch new products, or should it be only for new business ideas? How can a sustainable model be created in a sensitive situation like this?

Addressing the aforementioned issues, evolve a Crowdfunding Strategy for Mahindra Group Corporate Finance.


mahindra group finance crowdfunding strategy

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