SEBI proposes relaxed regulations for listing of startups on stock exchanges

Market regulator SEBI's new proposals on listing norms for startups is set to encourage Indian startups to eye IPOs on the domestic stock exchanges, providing an exit for investors.

The Securities Exchange Board of India (SEBI) has paved the way for easier listing of startups on the stock exchanges in India by proposing new regulations that are more in sync with the current environment.

The earlier regulatory framework, called the Institutional Trading Platform (ITP), was put in place in August 2015, to facilitate listing of new-age start-ups in sectors like e-commerce, data analytics, bio-technology and others. However, the market regulator, in its consultation paper, admitted that the earlier framework had failed to gain interest and, as such, has come out with certain recommendations to make the platform for accessible.

The first change that SEBI has proposed is the name itself of ITP and has now mooted “Innovators Growth Platform”. Among the other key changes which have been proposed by the regulator include eligibility criteria, minimum application size, allocation to investors and minimum offer size.

One of the key revamped proposal of the regulator has to do with the holding of qualified institutional investors in the startup. The current regulation states that the holding of such investors should be 50 percent before the IPO, while the new proposal has brought it down to 25 percent.

The regulations also stipulated that no person, individually or collectively with persons acting in concert, shall hold 25 percent or more of the post-issue capital, as an eligibility criterion for the entity to list on ITP. Now, SEBI has proposed the removal of this provision and has recommended that there be no separate provision capping post-IPO shareholding.

The current regulations state that the minimum application size shall be Rs 10 lakh. However, SEBI has now proposed that this be revised to Rs 2 lakh and in multiples thereof.

Welcoming these regulations, Siddarth Pai, founding partner of 3one4 Capital says, “This is good and the important thing is that startups will start preparing to list.” But he believes that the proposed criteria of minimum application size is "bit high" to evince the interest of retail investors.