SEBI chief meets start-ups to discuss regulatory issues

Regulator wants tech firms to consider domestic market instead of foreign

Concerned about the poor state of the primary market, capital markets regulator Securities and Exchange Board of India (Sebi) met new technology companies to discuss the problems they face in raising capital.

The meeting comes amid easing of norms related to depository receipts (DRs), which allow domestic companies to raise equity capital in the foreign market without the earlier prerequisite of having to list here.

According to sources, Sebi wants to encourage domestic companies to consider listing in the home market instead of foreign ones.

Industry players believe technology companies prefer listing abroad, especially in the US market, where the valuations on offer are attractive. Most IT companies in the start-up space have already registered abroad to avoid complexities in the Indian regulatory system.

Start-ups and Sebi discussed problems faced by the former while planning a domestic Initial Public Offering (IPO), fund-raising from abroad investors, and regulatory differences, sources said.

The meeting, which took place here last month, was organised by software product think-tank iSpirt (Indian Software Product Industry Round Table) and was attended by top executives of InMobi, Ezetap, Exotel, HotelLogix, iViz, Paytm, QuickHeal and Deck.in.

Besides start-up entrepreneurs, a team of Sebi led by chairman U K Sinha and iSpirt was present. This included Mohandas Pai, former chief financial officer of Infosys and an advisor to iSpirt. The attendees included senior officials of venture capital firms such as Accel Partners and IDG Ventures, along with representatives from legal firm Khaitan & Co.

“It was an industry-regulatory interaction to understand and collaborate on issues that concern regulators on one side and startups on the other,” Manju Nanjaiah, CEO of start-up SchemesCentral, who attended the meeting, told Business Standard.

“One of the primary points of discussion was about patriotic entrepreneurs being pushed abroad because of an unfriendly business environment here. Start-ups that have been doing well and have global ambitions need help from regulators like Sebi.”

Presentations of several start-ups highlighted their willingness to tap the domestic market and the regulatory hurdles they face.

“Sinha was very forthcoming with his admission that new-age companies require a new paradigm of evaluation and approvals. The new paradigm is needed not just for listing purposes, but also for market regulation and growth purposes,” said Nanjaiah.

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He said Sebi would address any regulatory hurdles with regard to fund raising.  Despite a 30 per cent surge in the benchmark indices, India’s IPO market remained tepid last year with only five companies raising a cumulative Rs 1,200 crore, the lowest in a decade.

In the past few years, Sebi has taken several similar initiatives to give a boost to the domestic market. Last year, Sebi had visited several entrepreneurs in smaller cities to discuss issues regarding equity capital raising.

Sebi has also introduced separate platforms such as SME Exchanges and Institutional Trading Platform (ITP) that allow companies to list far less regulatory prerequisites compared to normal listing. Last year, Sebi had also floated a discussion paper on crowd funding, but has not yet finalised any framework in that regard.

Regulator meets start-ups

* Close to 80% of successful Indian software start-ups registered overseas

* Most big new tech firms like Flipkart, Snapdeal, InMobi, Capillary are registered outside India

* Sinha, start-ups met to discuss FIIs, IPOs, book building hurdles

* Sinha indicated that SEBI looking to put in place a framework for crowd-funding

* Sinha indicated that SEBI is keen to facilitate fund raising by start-ups

* SEBI team to meet industry representatives every month to discuss & solve issues