SEBI listing norms not so easy on tech startups

ET Retail

NEW DELHI | MUMBAI | BENGALURU: Indian entrepreneurs have reacted cautiously to market regulator Security and Exchange Board of India’s decision to relax listing norms for the country’s startups, with a number of them stating that the rules continue to favour nontechnology ventures.

On Tuesday, Sebi announced a host of rules intended to allow startups to list on the alternative institutional trading platform, while doing away with the promoter concept, eased lock-in requirements and diluted fund-usage.

However, for startups looking to list themselves on the institutional trading platform, at least 25% of a startup’s pre-issue capital has to be held by qualified institutional buyers (QIBs), while for non-tech startups, the bar has been set at 50%. “We are almost ready file for our IPO, but we don’t quality for the platform as they have said that promoter holding should not be more than 25%,” said Dinesh Agarwal, founder and chief executive of IndiaMART, a Noida-based B2B marketplace. Sebi’s announcement also comes at a time when an increasing number of Indian startups, primarily in the consumer internet space, are mulling public market debuts over the next 12-18 months, but on overseas bourses, such as New York Stock Exchange or Nasdaq.

Technology entrepreneurs point out that such a stance is driven by the fact that stock exchanges in India favour companies that deliver profitafter-tax which is difficult for neweconomy ventures that maybe lossmaking ventures for some time, before churning out positive cash flows. “For tech companies the international stock markets continue to remain more attractive,” said Vijay Shekhar Sharma, founder and chief executive of mobile commerce company Paytm.

He also pointed out that the country’s stock exchanges, unlike those in the US, continue to discriminate against what are being termed as new economy enterprises.

“There has to be a signature attempt to bring them into the fold, because at this point, it seems that these rules seem to be more about startups, but not for tech startups,” Sharma said.

Sebi’s decision to set Rs 10 lakh minimum application size and trading lot, is also being seen as a cause for concern.

“The intent is good, but I don’t know if the mechanics are right. Globally, the investors have also been wary of the alternative platforms, which raises the question on who will actually buy on this platform when companies (list),” said Rehan Yar Khan, general partner at early-stage venture capital firm Orios Venture Partners.

India’s technology ventures have emerged as the top draw for venture capital investors so far this year, as early-stage investors breached $1 billion in investments in the country for the first time in a single quarter. The country is ranked fifth in terms of the size of its startup industry, behind developed markets, such as the US, Europe, Canada and China. In recent years the onerous regulations have forced a number of technology startups to domicile themselves in countries, such as Singapore.

“There is a tech exodus underway. To arrest this we have to fix regulations related to early stage investments, M&A transactions and IPO,” said Sharad Sharma, cofounder of leading technology think-tank, iSPIRT.

“Sebi has tackled the IPO regulations and come up with a thoughtful solution,” he added.


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