The Securities and Exchange Board of India (SEBI) Chairman U.K. Sinha announced yesterday that it would be setting up a new alternative platform for internet start-ups. The capital markets regulator relaxed its regulations for start-ups to list and raise funds through this platform in an effort to encourage the companies list in India itself rather than listing overseas.
Some of the norms relaxed by SEBI include reducing the lock-in period for investors in these start-ups to six months in comparison to three years regular initial public offerings. Apart from this, disclosure norms for start-ups listing themselves in this platform would be diluted. SEBI has also fast-tracked the process for start-ups to raise funds through Initial Public Offers (IPOs) by reducing the listing time by half to six days the public offer. Currently this process takes 12 days after the IPO for a company to become listed on the exchanges and in this way keeps investors’ funds locked in for a longer period of time. It has allowed a large number of companies to tap this ‘fast-track’ route for raising funds from existing and new investors. It has also expanded the Application Supported by Blocked Amount (ASBA) facility for IPOs which will do away with cheque payments. ASBA is a application mechanism for subscribing to IPOs in which the bid amount is blocked in a bank.
SEBI’s new norms have however not allowed small individual retail investors to invest in start-ups and minimum cap for an investor investing in such a venture would be Rs.10 lakh. The higher cap and not allowing small individual investors is to dissuade them as the risks could be much higher in such investments. Also, the disclosure and other listing requirements are much relaxed in such offerings which can be seen as higher risks for small individual retail investors. Right now it is looking at institutional investors, HNI and NRI investors. At least 25% of the pre-issue capital would need to with institutional investors for technology start-ups, while for companies from other areas this requirement would need to be 50%. The norms allows for 75% shares to be reserved for institutional investors.
SEBI had issued draft guidelines for start-up listings in March and these regulations come post that. Though the markets regulator has streamlined the process and coming up with a faster way for start-ups to raise funds and investors to liquidate earlier, the wait will be a little longer for investors for making the IPO process entirely online in terms of submission on bids. For some time online submission of bids will be available from terminals of market entities, the same facility will be made available on your computer or mobile some time later.
Apart from this Sinha also said that SEBI is working on the new crowd-funding norms which would provide another way for entrepreneurs and new-age companies to raise funds. A decision regarding this he said will be taken soon. This would definitely help internet trading platforms to get some much needed funding. Crowd-funding involves entrepreneurs or small groups of people raising funds for ventures through online platforms where they get contributions from individuals or organizations. This larger markets such as the US, UK and China this is growing faster especially with the help of social media platforms. However, in India it is still at a nascent stage.
This news by SEBI has come as music to the ears of start-ups who have been looking to grow but until now have had to look towards large hedge fund companies or angel investors for funding. With start-ups ability to raise funds increasing we could expect higher ad and marketing spends from those start-ups that manage to raise funds for building their brand. Following the news some of the start-ups commented the following.
Abhiraj Bhal, Co - Founder, Urbanclap.com said, “The recent SEBI announcement is a welcome step. While still early days, it paves the way for Indian startups to go fully public in domestic markets in the future. We are currently in the midst of a consumer internet revolution in India, and the next decade will see a very large wealth creation cycle. Listing in the Indian market will allow Indian retail investors to participate in this wealth creation wave.”
Shiju Radhakrishnan, Founder & CEO, iTraveller.com said, “It's an important step in the right direction, as it will create a level playing for the early stage startups, easing norms for listing will help startups get access to the local money available in plenty rather than be dependent on a handful of institutional investors. Compared to that of global markets, India was about a decade trailing in terms of access to capital, when it comes to IPO. The revised norms by SEBI might directly help early stage startups like iTraveller in raising funds through IPO's in next 3-4 years once the norms are matured.”
Sanjoe Jose, Co-Founder & CEO, Talview said, “This is a great initiative at least in showing the intent of SEBI. I would have preferred to see Retail investors also having an opportunity to be part of the growth story, 10 Lakhs limit is a little high. If the government can follow up with change in regulations for easier payment collection, tax sops for retail investors who invest in tech startups like EIS and SEIS tax breaks available in UK then it will significantly improve the environment growth stage startups in the country.”