Sebi notifies start-up listing norms; makes fund raising easier

The new platform would be open to only institutional investors and HNIs, as Sebi feels small retail investors need to be safeguarded

Making it easier for start-ups to raise funds, the Securities and Exchange Board of India (Sebi) on Friday notified a new set of listing norms for such entities, including e-commerce ventures, on a separate platform of domestic stock exchanges.

The new norms provide significant relaxations in the disclosure requirements, while Sebi has also relaxed its delisting, takeover and Alternative Investment Fund (AIF) regulations for such new-age entities engaged in information technology (IT), data analytics, intellectual property, bio-technology or nano-technology like activities.

The extensive changes in Sebi regulations would allow such entities to get listed on the separate Institutional Trading Platform of the stock exchanges such as BSE and National Stock Exchange and are aimed to encourage the Indian start-ups and entrepreneurs to remain within the country rather than moving abroad for funds.

However, the new platform would be open to only institutional investors and high net worth individuals (HNIs), as Sebi feels small retail investors need to be safeguarded against a higher level of risks associated with this platform.

Sebi has kept the minimum trading lot and the minimum application size at Rs 10 lakh so that only sophisticated and large investors come in. The companies can, however, graduate to the main platform later and the small investors can also invest at that time.

There are expectations that a large number of start-ups are already looking to tap this platform and the industry estimates suggest the total funds to be raised by such entities can run into billions of dollars, as it would be mostly the large investors who would be allowed on this platform.

Sebi Chairman U K Sinha had recently said such companies might lack a profitability track record but many of them have huge potential to become highly profitable.

The relaxations include removal of caps on the money spent by such companies on publicity and advertisements as they need to spend much more for such purposes.

There is also a significant likelihood that many of these companies would eventually become eligible in a few years for listing in the main market, thus enabling even the retail investors to participate directly in their growth story, the Sebi chief had said.

Asked about his expectations for response to the new platform, Sinha said, "Their feedback is very positive... I am hopeful many of these companies, being approached by Singapore and New York exchanges earlier, would come and list here."

For their listing, Sebi has also relaxed the mandatory lock-in period for promoters and other pre-listing investors to six months, as against three years for other companies.

Besides, the disclosure requirements for these companies have been relaxed.

At least 25 per cent of their pre-issue capital would need to be with institutional investors for technology start-ups, while this requirement would be 50 per cent for companies from other areas.

Institutional investors along with family trusts, systematically important non-banking financial companies (NBFCs) and intermediaries registered with Sebi -- with minimum net worth of Rs 500 crore -- would be allowed to access the institutional trading platform (ITP).

Non-institutional investors, excluding retail individual investors, can also tap this platform.

The entity would have to list its securities on the recognised stock exchange within thirty days of getting approval from Sebi.

Provisions relating to minimum public shareholding would not be applicable to entities listed on institutional trading platform without making a public issue.

With regard to exit rules, Sebi said the entity whose securities are listed on the ITP platform may exit from such platform in case its shareholders approve such exit by passing a special resolution via postal ballot where 90 per cent of the total votes and the majority of non-promoter votes should be in favor of such move.

"No entity promoted by promoters and directors of an entity delisted... shall be permitted to list on ITP platform for a period of five years from the date of such delisting, provided that the provisions of this regulation shall not apply to another entity promoted by the independent directors of such a delisted entity," Sebi noted.

The start-ups listed on the institutional trading platform can migrate to the main board after expiry of three years by meeting certain guidelines.