SEBI eases fund-raising, listing norms for start-ups

Start-ups will now be able to access the mainstream capital market with SEBI giving its approval to set up a new platform.

The new platform, called institutional trading platform (ITP), is for companies which are intensive technology users. At least 25 per cent of the pre-issue capital of such companies has to be held by qualified institutional buyers.

“With over 3,000 start-ups, India ranks fifth in the number of start-ups, after the US, the EU, Canada and China. Investors, mostly from abroad, have invested millions in Indian start-ups… so there must be some merit in them,” UK Sinha, Chairman, Securities and Exchange Board of India, said at a press conference.

The biggest gripe for start-ups wishing to list publicly was the strict disclosure norms in India. The ITP relaxes these requirements. For instance, promoter holdings are locked-in for three years. Under the new platform, this is reduced to six months.

A company listing on the ITP need not go into detail regarding how it will use the funds raised (the objects clause in the offer documents has been liberalised), nor does it have to disclose information on group companies, litigations and creditors unless the company believes the information is material.

Gesu Kaushal, Executive Director, Kotak Investment Banking, who represented the Association of Investment Bankers of India during discussions with SEBI for creating the ITP, said the genesis of the project was news of start-ups flipping structures to list abroad rather than locally. “And as a capital market regulator, one would want to keep the liquidity and fund-raising within the country.”

“If you pick up the Alibaba prospectus, there would be half a page on use of proceeds and one paragraph on general corporate purposes — and they raised billions of dollars. Internationally, these kinds of details are not typically required. In India, there are concerns over the business models of start-ups. So, the via media that the regulator thought of was to keep retail out and see a few good companies list in India,” Kaushal said.

While retail investors are barred from investing directly, they could still be exposed if their mutual or insurance funds have the mandate to invest in start-ups.

In an interview earlier with BusinessLine , Gaurang Shah, Vice-President, Geojit BNP Paribas, struck a note of caution on listing of e-commerce companies. “It beats me how sky-high ecommerce valuations are; I hope there is no asset bubble here if e-commerce companies get listed at huge premiums. It should not take people for a joy ride in terms of valuations, because we’ve seen this happen before globally.”

Besides the listing of start-ups, SEBI also announced a new framework for promoters in listed companies to be reclassified as public shareholders, if they wish to do so and subject to certain requirements. It has also made electronic IPOs mandatory for companies listing from January 1, 2016, and reduced the minimum public holding requirement for listed companies wishing to raise further capital from the markets.

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