Despite efforts made by market regulator Securities and Exchange Board of India (SEBI) to enable start-ups to list on the bourses, not many are ready to go public. Fear of making disclosures, availability of cheap funds elsewhere and rules governing listing are putting off start-ups from going the IPO route.

“Besides compliance protocol, start-ups will have to keep their commercial data, business model and strategy in the public domain which anyone can access. As unique ideas are the key differentiating factors for start-ups, this could harm their privacy and create scope for the idea being emulated by others. Listing could, therefore, have a negative impact on their business,” said Mukul Sachan, co-founder of LendingKart.

SEBI, in June last year, eased norms for start-ups, including e-commerce ventures, to allow them to list on ITP (Institutional Trading Platform), a separate platform on domestic stock exchanges for such entities. Recently, SEBI also tweaked and further eased the listing norms. But the market regulator has not yet received a single application.

BusinessLine spoke to angel investors, venture capital firms and start-ups to understand why there has been no action on the listing front even though several e-commerce companies have been mulling billion-dollar IPOs in the overseas market.

Anand Lunia, founder of Venture Capital fund IndiaQuotient, said India has not yet reached the stage to witness tech IPOs compared with the US market, which is a far bigger and open economy than India.

However, he said many single-brand online companies such as Yepme and Zivame, along with a few SaaS-based start-ups and chains such as Mydentist and Faasos — which are profitable even at a lower revenue — can go for listing in a year or two.

VC vs traditional investor

Another VC investor, on request of anonymity said there is a disconnect between the VCs and the traditional investors in India on how they want companies to grow. While a VC would want growth over profitability, it will be the other way around for a traditional investor.

“Besides, we have seen a lot of tech start-ups losing their valuation in the past two years, which is also a reason why even if they list, it will be hard to convince the subscribers,” he said, adding that many start-ups in the housing, food delivery and grocery sectorsare still busy sorting out their business models every now and then. Investors will never bet on such companies, he said.

Harshad Lahoti, angel investor and founder of ‘ah! Ventures’, said the main purpose of an IPO is liquidity and to get compliance in place. However, for start-ups, there is no crunch of liquidity at present.

“While start-ups would be still interested in liquidity, the strict compliance norms may not be worth a start-up’s time. The procedures are too lengthy and complicated. As such, start-ups have a lean team. With such norms, will they be focusing on getting compliance sorted or focus on their business,” Lahoti asked.

Stringent norms

Apoorv Ranjan Sharma, founder, Venture Catalyst, said: “The Indian laws are stringent. Even the companies trading on the main platform are facing issues. About 50 per cent of the stocks have not performed well after IPO. For start-ups, we need more relaxed norms.”

“Besides, none of these startups are profitable; so even if one gets listed, the response will be quite tepid.”

If SEBi is willing to further relax rules, some may look at the option. Pavan Sondur, CEO, Unbxd, an on-site product discovery software, said: “There are concerns around liquidity and hence retail investors being kept out. This sends a wrong signal.”

SEBI has kept the minimum trading lot and the minimum application at ₹10 lakh so that only sophisticated and large investors can come in.

Data from research firm Tracxn show that Indian start-ups are historically not interested in going public. Since 1986, only about 17 tech start-ups — including MakeMyTrip, Infibeam, Koovs, Justdial, OnMobile, Ramco and Naukri — have gone for listings at an early stage, either overseas or on the main platform of the Indian bourses.

Global sentiment

Meanwhile, it seems like the IPO market for tech start-ups is not picking up even globally. Many Silicon Valley start-ups — including Uber, Snapchat and Airbnb — have opted for private ownership by raising billions of dollars rather than tapping the equities market.

Arvind Singhal, founder of research firm Technopak, said that globally investor sentiments have taken a beat in the past two years even as the valuations of many start-ups have come down.

According to a WSJ report, the number of tech IPOs have declined in 2016 to nine from a whopping 24 about four years back.

“We need at least 2-3 success stories to get that sentiment up,” Singhal said, and added that India will take another two years to see a tech IPO.

Published on August 31, 2016