Will start ups start using the platform given to them by SEBI? Start ups initially receive funding from private sources and then they leverage the initial funding to receive more funding. Listing on the exchange would enable transparency and price discovery and will also enable founders and employees to cash in on their stock options. However the question is whether the starts ups will list on exchanges given the fact that increased scrutiny could lead to the intial levels of innovative thinking taking a back seat in order to cater to investor demand for growth.
SEBI acted to boost Indian start-ups by relaxing its regulation for them to list and raise funds through a dedicated platform on domestic stock exchanges, rather than going overseas. Under the new norms approved by the SEBI, stock exchanges would have a separate platform named as Institutional Trading Platform (ITP) for listing of start-ups.
The major steps comes in at a time when many start-ups were looking to list their companies in overseas market like Singapore or the US. SEBI Chairman UK Sinha said that “They felt the regulatory regime in this country was not favourable for listing in India. So we have made very special provisions for such start-up companies”.
About 3,100 start-ups in India have raised USD 7.2 billion in venture capital and private equity funding since 2013 most of it going to technology companies, according to Thomson Reuters
SEBI in its relaxed norms has done away with promoter concept, eased lock-in requirements and diluted disclosures norms.
Following are some of the relaxed norms
- The minimum investment requirement would be Rs. 10 lakh.
- Halved the listing time to six days from the date of the public offer
- The mandatory lock-in period for the promoters and other pre-listing investors to six months, as against three years for other companies.
- The disclosure requirements for these companies have also been relaxed
- 25% of their pre-issue capital would need to be with institutional investors for technology start-ups, while this requirement would be 50% for companies from other areas.
- Reclassification of promoters as public investors provided they let go all their special rights, including voting powers, and do not own more than 10 per cent stake.
Institutional Trading Platform (ITP) will be made accessible to companies which are intensive in their use of technology, information technology, intellectual property, data analytics, bio-technology, nano-technology to provide products, services or business platforms with substantial value addition.
Norm also states that the standard valuation parameters such as P/E, EPS, etc. may not be relevant in case of many of such companies, the basis of issue price may include other disclosures, except projections, as deemed fit by the issuers.
The platform (ITP) will be accessible by only two categories of investors (i) Institutional Investors along with family trusts, systematically important NBFCs registered with RBI and the intermediaries registered with SEBI, all with net-worth of more than Rs. 500 crore and (ii) Non-Institutional Investors other than retail individual investors.