Capital market regulator SEBI has eased the process of listing for start-ups.
With the objective of ease of doing business, Government of India has taken various measures to promote startups. Out of the various measures adopted, capital market regulator SEBI has eased the process of listing for start-ups.
Setting up framework
Considering that new age companies were bypassing the Indian investors by tapping the private equity investors, SEBI a few years ago opened a platform called the Institutional Trading Platform (ITP) for e-commerce, data analytics, biotechnology and other startups to list with the minimalistic hassle and also relaxed quite a number of stringent conditions. The review of the framework for ITP has undergone a series of amendments and discussions.
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In August 2015, ITP was put in place vide amendments to SEBI (ICDR) Regulations. However, the framework failed to gain interest. In July 2016 the discussion paper was put in place to enhance interest amongst startups. However, the market interest continued to be lukewarm and no amendment to the ICDR Regulations was made.
In June 2018 SEBI constituted a group with stakeholders to review ITP framework and identify areas which require further changes. However, the threshold norms for getting securities or shares listed was still very high and hence, under normal parlance for startup companies to list their securities was remotely achievable. The ITP did not garner the steam it was expected when it was launched.
Considering this and potential of startups, SEBI in its board meeting on December 12, 2018, has cleared the proposition for providing easy listing norms in cases of startups which are into intensive use of technology, information technology, intellectual property, data analytics, biotechnology, nano-technology and which add value to the product and services.
The recommendations by the group were discussed in the meeting of Primary Market Advisory Committee of SEBI and based on those recommendations, a revised consultation paper containing the proposals, was approved by SEBI. Some of the key propositions approved in the meeting were:
- ITP platform has been renamed as Innovators Growth Platform (IGP).
- 25% of the pre-issued capital collectively should have been held for at least two years by QIBs / other regulated entities (which include family trust whose net worth is more than Rs 500 crores, Category III FPIs, pooled investment fund with minimum assets under management of $150 million with other specified conditions) / accredited investors (gross total income to be Rs 50 lacs annually for individuals and who have minimum liquid net worth of Rs 5 crores or net worth to be Rs 25 crores for corporate).
- Not more than 10% of the pre-issue capital be held by an accredited investor.
- The minimum application size and the minimum trading lot to be Rs 2 lacs and in multiples of Rs 2 lacs.
- The minimum number of allottees to be 50.
- Minimum public shareholding norms are to be satisfied and the minimum offer size to be Rs 10 crores.
- IGP to be designated as a platform for start-ups with an option to trade under regular category after completion of one year of listing subject to compliance with exchange requirements.
The provisions relating to cap on holding the post-issue capital by any person, individually or collectively with persons acting in concert has been now deleted. Going forward, there will not be any minimum reservation of allocation to any specific category of investors and the allocation will be made on a proportionate basis. The proposals will have a far-reaching impact on the start-up ecosystem and are expected to gain market interest and align with the overall objective of giving a kick-start to the potential startups with regard to market access and fundraising.
While currently, BSE does not have a separate platform for the listing of startups and they are required to list on the BSE SME segment, however, it has expressed plans to launch a separate platform for listing start-ups. IGP in its rejuvenated avatar should satiate the needs of the investors and that of the new age companies. 2019 will hopefully have a heightened level of capital formation for startup companies.
(This article has been jointly authored by Sandeep Shah – Partner, Amrita Bhatnagar – Manager and Vaibhav Gandhi – Qualified Associate from N.A Shah Associates LLP. Views expressed in this article are authors’ own)