The Securities and Exchange Board of India (Sebi) has relaxed norms for listing of start-ups, in a bid to stem the growing tide of such firms rushing overseas to raise funds from equity markets in countries such as Singapore and the US.
At a board meeting on Tuesday, the market regulator approved the proposal to allow stock exchanges to float a separate trading platform to enable start-ups and e-commerce firms raise funds from institutional investors. It also relaxed the mandatory lock-in period for promoters and other pre-issue investors, to six months, compared to three years for other companies.
The move is primarily aimed at providing start-ups a more relaxed trading environment in the country. “India has a vibrant start-up culture and is the fifth-largest country in terms of the number of start-ups after the US, European Union, Canada and China. But of late, most of these start-ups have been thinking of listing overseas. We would like to create the right atmosphere for them to list here,” Sebi chairman UK Sinha said.
While the country is home to high caliber talent housed in premier educational institutes such as the IITs, start-ups promoted by such students have been going to the US and other countries to raise funds from venture capital companies and private equity firms. Since 2013, about 3,100 start-ups have raised $7.2 billion in venture capital and private equity funding, most of them overseas.
The new norms will also allow at least 25% of the pre-issue capital of start-up firms to be with institutional investors. It is 50% for other companies. The minimum application size, as well as the minimum trading lot, will be `10 lakh.
The regulator has also exempted disclosure norms. “Disclosure may contain only broad objects of the issue and there shall be no cap on amount raised for general corporate purposes,” Sinha said.
Emkay Global MD Krishna Kumar Karwa said: “Companies will be able to raise money from qualified institutional buyers and high net worth individuals.”
However, most market intermediaries were doubtful about valuations that the firms would command in India, compared to the premium enjoyed overseas.
“The idea to raise funds overseas is not only due to the money, but also the help that foreign investors provide, like tying up with the right kind of partners,” said Abhijit Tannu, chief technology officer and co-founder of Seclore Technologies.