The booming start-up industry can heave a sigh of relief after SEBI’s latest statement regarding listing norms. The board has announced on Tuesday that the framework for upcoming enterprises has been relaxed for better capital outputs from the stock market.
The said framework has been laid down by SEBI on a separate platform itself. Start-ups will not need to specify the exact end-use of such funds and resort to traditional metrics to support the price at which they sell their shares. The regulator has also created a way for the migration of these shares from the smaller platform to the main board.
Some of the relaxed requirements include reducing the lock-in period for investors in start-ups to six months, compared with three years for regular initial public offerings (IPOs). Disclosure norms for start-ups listing in the alternative trading platform will also be diluted.
“Most of these start-ups were thinking of listing outside India. We have made a very special provision for them now,” SEBI Chairman U K Sinha said at a press conference, announcing the decisions taken at a board meeting of the regulator. He also added that SEBI had held discussions with start-ups and taken on board all the requirements listed by them.
“The start-up listing requirements have been brought as close as possible to the international process. This should encourage a lot of companies and investors,” said Sanjay Sharma, managing director (equity capital markets), Deutsche Equities.
“Conceptually and fundamentally, a very positive step; directionally, an important step for start-ups…It provides another exit option for investors, which was not available,” said Pankaj Khandelwal, founder and chief executive, INI Farms, an agro start-up in which Ronnie Screwvala’s Unilazer Ventures has invested.
Regarding investments with venture capitals, one of the first questions asked is about possible exit strategies. A venture capital usually resorts to three exit strategies – another investor buys you out, a strategic sale to another company, or through an IPO. So far, the last option wasn’t available. Khandelwal feels the regulator’s move will discourage companies from locating their headquarters abroad. As of now, many have their headquarters in Singapore, with an eye on listing in the future
“The step taken by SEBI is very encouraging. India today is witnessing a vibrant entrepreneurial culture with a large number of start ups emerging on to the big stage. Unnecessary hassles and restrictions in listing were driving startups to list abroad. The liberalizing of the listing norms and access to an alternative institutional trading platform promises to create a better ecosystem for ventures to list and raise capital in India. It is a win-win situation for both entrepreneurs and investors. The relaxation will not only attract many foreign investors but will also give domestic investors a chance to become a a part of the success story of the start-up revolution. At Bonita, we are currently in talks with several venture capitalists for funding to expand our horizon. We believe that funding norms should be made easier rather than stringent for businesses to flourish. It is businesses that create jobs and contribute to the incomes,” said Umang Srivastava, Joint Managing Director, Bonita on SEBI’s new framework.
SEBI said that the new regulations would be applicable to technology companies in the field of IP, data analytics, bio-technology and nanotechnology. Other companies can also take advantage of the easier fund-raising mechanism, as long as institutions hold at least 50 per cent stake in them. As much as 75 per cent of the shares will have to be sold to institutional investors on a discretionary basis. This means the issuer can decide which institution gets its shares. Another 25 per cent will be allocated to non-institutional investors who meet the criteria of investing at least Rs 10 lakh.
Soon, SEBI will decide on crowd-funding norms in India, in what might be a framework on the lines of the US Jumpstart our Business Startups Act, passed in 2012.
(With inputs from Business Standard)
