The move by the Securities and Exchange Board of India (Sebi) to provide a separate public listing platform for start-ups is seen as a positive step by the entrepreneurs as it opens doors to raise capital and create value within the country. However, concerns remain on the time taken to register companies and uncertainty over taxation on angel investments.
Vijay Shekhar Sharma, founder and CEO of mobile wallet firm Paytm said that while Sebi has offered necessary changes to the IPO process, these were not adequate for India’s fast-growing technology companies. “This is a bit of fast-tracking, but base norms don’t change much. For tech companies, international stock markets remain more attractive,” he said.
The start-up space in India, which has been dominated by technology led firms, has seen rapid growth with investments totalling $2.36 billion in the first four months of 2015. According to Nasscom, there are over 3,100 technology startups in the country.
Now, Sebi has allowed these firms to list on institutional trading platforms (ITP) with easier disclosure norms. According to market regulator, this will be only open to institutional investors as they are better informed about this segment and gives the start-ups the opportunity to list in India instead of turning overseas.
Sharad Sharma, co-founder iSPIRT, a thinktank for technology product companies, said this is a positive move as there are enough number Indian start-ups keen to list but have dithered due to the difficulties involved. According to him, unlike the e-commerce companies, there are other segments that need access to capital and the new listing regulations will provide them the necessary liquidity.
The biggest benefit for the start-ups will be the access to quality capital and an easier exit option. Ashish Shah, Pepperfry co-founder, said, “The move shows the increase in overall trust in the sector. Now it will be easier for start-ups to get listed and raise money. Sometimes you have a really good business model, but because of the lack of capital, the venture doesn’t start or dies out sooner than expected.”
V Balakrishnan, former Infosys board member and chairman of Exfinity Venture Partners, told FE, “Under the new mechanism, start-ups will be able to access the institutional investors who are well informed about them with much lesser pain on disclosure. The start-ups will be able to access capital as the first step and then go for a larger IPO.”
However, like Paytm’s Sharma, Balakrishnan, too, feel the measures taken by Sebi will not be enough as more steps need to be taken in the areas of taxation and registration of companies. “In the start-up space today, most of the companies are incorporated outside India creating value at a foreign location. Unless there is a change to make it easier for startups to operate in India and remove the uncertainty in the taxation structure, value creation will remain outside India,” said Balakrishnan.
The startup space in India has seen a boom in terms of investment with funding totalling $2.36 billion in the first four months of 2015 compared with $4.78 billion in the full year of 2014, according to estimates by VC funding tracking firm Tracxn.
Urbanclap.com co-founder Abhiraj Bhal said, “We are currently in the midst of a consumer internet revolution in India, and the next decade will see a 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 of iTraveller.com, says domestic investors will now be able to be a part of the startup success story. “Compared with global markets, India stands a decade behind in access to capital, when it came to IPOs,” he said.
Sebi’s move shows the rising trust in the sector. It will encourage entrepreneurs looking to list. Sometime you have a good business model but because of the lack of capital, the venture doesn’t start or dies out soon. This shows the govt is sincere about these sectors.
Ashish Shah, COO, Pepperfry
Sebi has proposed a few changes to the IPO process, but these are not enough for the fast-growing technology companies. This is a bit of fast-tracking, but base norms don’t change much. For tech companies, international stock markets remain more attractive.
Vijay Shekhar Sharma,Founder, Paytm
It will now be easier for innovative ideas to flourish and enable Indian equity companies to invest in India itself. This will encourage technology start-ups to list on domestic bourses rather than go overseas. We are happy the govt is looking up for welfare of the start-ups.
Azeem Zainulbhai, CFO, Housing.com
Sebi’s move will definitely help companies in the size of R50-250 crore that cannot do a normal IPO, but go through a price discovery mechanism. This will help them get a better valuation.
Rajinder Gandotra, Co-founder & CEO, Avekshaa Technologies
A good step by Sebi, but most start-ups are incorporated outside India create values abroad. Unless there is a change to make it easier for them to operate in India and remove the uncertainty in tax structure, value creation will still remain outside India.
V Balakrishnan, Partner & chairman, Exfinity Venture Partners and former Infosys board member