Securities and Exchange Board of India (Sebi) is all set to introduce new guidelines for technology related start-up companies. Sources say Sebi is likely to consider increasing the portion of the issue size allocated to qualified institutional buyers (QIBs) and reduce the minimum number of non-institutional investors (NIIs) as it readies contours of the final guidelines.

In a discussion paper, which was released in March, Sebi had proposed relaxing listing norms for new age start-up firms by setting up an alternate capital-raising platform through a separate institutional trading platform (ITP) that would have allocation to two categories of investors, comprising QIBs and NIIs, in the ratio of 75% and 25%, respectively.

The market regulator had proposed to cap QIB allotments to 5% of the issue size. Sources say it may tweak this provision in its final guidelines by increasing the limit to 10%. This is expected to attract long-term capital and encourage larger QIBs.

Moreover, Sebi is likely to evaluate a reduction in NIIs from 500 to 300 allotteess, since a high-spread requirement may fragment holdings, making investments lose sheen for QIBs.

Sebi is also expected to clarify the term promoters as founders of the start-up and not venture capital and private equity firms that may have invested in such companies. It is likely to announce the final guidelines by the end of June.

To provide easier exit options to angel investors and venture capital funds, Sebi had proposed to allow listing of SMEs in ITP without having to make an IPO.

Sebi has observed in its discussion paper that many start-ups do not incur profits in the initial years, but have the potential for rapid growth. Yet the lack of better price discovery mechanisms in India, compelled many entrepreneurs to consider listing in international markets like Singapore and the US, instead of domestic exchanges.

“It is a global phenomenon that many of them are getting acquired by large companies at high valuations. Innovators are therefore, looking for an environment where their inner strength and potential is fairly recognised,” Sebi said in its discussion paper.

It has proposed that a new platform for raising money within the country will initially be made available to companies that are in the areas of software product development and e-commerce.

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