Mumbai: Paving the way for start-ups to list within India, capital markets regulator SEBI today relaxed norms for them to get listed and raise funds through a dedicated platform on domestic stock exchanges -- a move welcomed by e-commerce firms and other new-age ventures.
The new norms are aimed at encouraging Indian entrepreneurs and their technology and other start-ups to remain within the country, rather than moving to overseas markets for funds.
Under the new norms approved by SEBI's board today, the exchanges would have a separate institutional trading platform for listing of start-ups, while the minimum amount that an individual or institutional investor would need to invest in such ventures would be Rs 10 lakh. However, small retail individual investors would not be allowed to invest.
A higher investment cap has been decided with a view to keep small investors away, as risks could be higher in such investments and the disclosure and other listing requirements have been relaxed, as compared to other companies.
For their listing, SEBI has relaxed the mandatory lock-in period for the promoters and other pre-listing investors to six months, as against three years for other companies.
Besides, the disclosure requirements for these companies have also been relaxed, SEBI Chairman U K Sinha told reporters after the board meeting.
At least 25 percent of their pre-issue capital would need to be with institutional investors for technology start-ups, while this requirement would be 50 percent for companies from other areas.
Sinha said: "Indian start-up space is very vibrant and the country is ranked number five as far as start-ups are concerned. More than 3,500 start-ups are there in the country and a large number of M&As have also happened.
"However, most of these start ups are thinking of listing outside India because they felt the regulatory regime was not favourable to them. So, we have made this special provisions for them."
Sinha also said that SEBI is working on the new crowdfunding norms, which would provide another avenue to the new-age companies and entrepreneurs to raise funds and a decision in this regard can also be taken soon.
For share sale of start-ups, the number of allottees in case of a public offer should be at least 200.
The company would also have the option to move to the main platform of the stock exchanges after three years, subject to compliance with eligibility requirements.
Welcoming the new norms, BSE Managing Director Ashish Chauhan said the new platform will ensure that the Indian start-ups prefer to list on domestic exchanges instead of going to foreign exchanges.
Leading e-commerce firm Snapdeal said it is a welcome move and provides the "much-needed access to funds".
Investment bank Equirus Capital's Munish Aggarwal said the dedicated platform is a step in the right direction as it helps bring together the start-ups and the informed investors interested to access start-up ecosystem.
Under the new start-up norms, 75 percent shares can be reserved for institutional investors, while they can be alloted up to 10 percent shares on discretionary basis.
For non-institutional categories, it will be on a proportional basis.
Sinha said various representatives from start-ups in the country and SEBI had four rounds of extensive discussions.
"We asked them what their problems were and they listed out all the requirements. I hope this market would become more vibrant going ahead," he said.
Explaining the new norms, which would be notified by SEBI in the due course, Sinha said the start-ups would also need to file DRHPs (Draft Red Herring Prospectus), but the disclosure requirements have been substantially diluted.
"We have diluted the norms, because we are not allowing the small retail investors to come in yet. The minimum investment amount would be Rs 10 lakh," Sinha said, adding that the norms have also been diluted due to the fact that these are the companies that may not be having a profit for last 1-2 years.
"Still, they are very empowered and informed investors are investing hundreds of millions of dollars in them," Sinha said.
On feedback from start-ups, Sinha said SEBI has tried to make the systems friendly for those who are ready for listing and were thinking of going abroad.
"While there may be certain benefits of listing abroad, India also has very high number of foreign investors registered here who can invest in these companies in India itself and you do not need to go abroad," he added.
The disclosure by start-ups need to contain only "broad objects of the issue and there shall be no cap on amount raised for general corporate purposes".
Since standard valuation parameters such EPS might not be relevant to start-ups, the regulator said the basis of issue price could include other disclosures, except projections.
Institutional investors along with family trusts, systematically important NBFCs and intermediaries registered with SEBI -- with minimum net worth of Rs 500 crore -- would be allowed to access the Institutional Trading Platform (ITP).
Non-institutional investors, excluding retail individual investors, can also tap this platform.
"All shares allotted on discretionary basis shall be locked-in in line with the requirements for lock-in by anchor investors, 30 days at present," the release said.
To rationalise the disclosure requirements, SEBI said disclosures in the offer document with "respect to group companies, litigations and creditors shall be in accordance with policy on materiality as defined by the issuer".
However, all relevant disclosures should be available on the issuer's website while the company advertisements would not be required to give details of public or rights issue.
The existing companies listed on SME (Small and Medium Enterprises) platform may continue to be guided by existing regulations for them, including applicable relaxations from compliance with corporate governance requirements.
"Considering the nature of business of companies which may list on the new platform, disclosure may contain only broad objects of the issue and there shall be no cap on amount raised for general corporate purposes," SEBI said.
The new platform will be accessible to "companies which are intensive in their use of technology, IT, intellectual property, data analytics, bio-technology, nano-technology to provide products, services or business platforms with substantial value addition and with at least 25 percent of the pre-issue capital being held by QIBs".
This would also be accessible to any other start-up in which at least 50 percent of the pre-issue capital is held by QIBs.
