Start-ups to get funds as Sebi opens up investment flow

Investors’ lock-in period reduced while listing and disclosure norms are made easy

GN Bureau | June 24, 2015


#sebi   #investment   #start-ups   #listing  

In next five years India is going have 11,500 start-ups with over two lakhs skilled staff, and recognizing the tremendous growth, the country’s capital markets regulator has opened up investment avenues for this sector.

The Securities and Exchange Board of India (Sebi) announced after a Tuesday board meeting a slew of measures to make it easier for start-ups to raise funds and list in India. The start-ups face issues of funding and listing norms and the Sebi has revised exit options like lock-in period which will bring in liquidity into the system.

 “We have got a feedback that most start-ups think of overseas market when it comes to listing. They felt that the regulatory regime for listing of start-ups was not favourable in India. So, we have decided to make it easier,” said UK Sinha, chairman of Sebi.

“Sebi is giving a lot of freedom in terms of pricing, disclosures and usage of funds to start-ups willing to get listed on this platform. Also disclosures in terms of litigations will be decided by the board according to materiality of the litigation,” Sinha said.

These are new measures for the start-ups:

Now, hi-tech start-ups in areas such as analytics and biotech can list in India on the institutional trading platform (ITP) of exchanges, if at least 25% of their pre-issue capital is held by qualified institutional buyers (QIBs), such as private equity and venture capital firms and non-banking financial companies.

Other start-ups can also opt to get listed on the platform, provided at least 50% of their pre-issue capital is held by QIBs. To pump in more funds it has also broadened the definition of QIBs to include non-banking financial companies and family offices or trusts and other entities that register themselves as alternative investment funds.

For start-ups willing to list on this platform, there will be no cap on the usage of public issue proceeds for general corporate purposes. Traditionally, not more than 25% of the capital raised can be used for general corporate purposes.

In the case of start-ups, the lock-in period will be only six months for all categories of pre-IPO shareholders as against existing rules that mandates a lock-in period of three years for (pre-IPO) shareholders holding more than 20% and one year for all other investors.

On the special listing platform for start-ups, 75% of the shares will be reserved for such institutional investors. The remaining 25% will be available for non-institutional investors.

No person (individually or collectively with people acting in concert) in such a company will be allowed to hold more than 25% of the post-issue share capital in a start-up, it added.

The start-ups get liberal terms of disclosure requirements. Companies intending to list on the proposed platform will be required to file draft offer documents with Sebi for observations with broad objectives of a public issue rather than details that are required of regular primary issuances.

The new norms for start-ups will come into effect after a gazette notification, which is likely to be put out in the next six weeks.

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