The securities market regulator SEBI has proposed relaxed norms for its separate platform to allow startups to list in the country. It has called for a much lower lock-in period for shares held by promoters and other investors compared with conventional three-year period, restricted the platform to tech companies and said this would be only open to investors with larger investment appetite.
SEBI has proposed that the new platform for raising money within the country will be initially made applicable to companies which are in the area of software product development and e-commerce. However, it kept a window open by adding that it can also include new-age companies having innovative business models.
The market regulator said it would be akin to a modified institutional trading platform with capital raising allowed with certain modifications in the current regulatory framework that may include relaxation on restriction of fundraising, minimum investment from certain category of investors, etc.
It would allow two categories of investors—qualified institutional buyers (QIB) and non-institutional investors (NII). SEBI has proposed that family trusts may also be allowed to apply under the QIB category.
Indeed, family offices, which manage private investible corpus of business houses, have been an active source of venture capital money and this shall provide a channel for them to participate in startups even as they go public in the new platform. But on the flip side, SEBI has added a rider that such family trusts would need to register themselves under its AIF norms.
Allotment to QIBs may be on a discretionary basis whereas to NIIs it shall be on proportionate basis. Allocation between the two categories shall be in the ratio of 75 per cent and 25 per cent, respectively. SEBI has added that any under subscription in NII category shall be available to QIB category and QIB shall be allotted more than 5 per cent of the issue size.
The minimum application size in case of such issues shall be Rs 10 lakh and the minimum number of allottees in such issues shall be 500.
SEBI said the startups using the proposed alternative capital raising platform shall be listed on it for a period of at least one year, post which they can migrate to main board subject to compliance with eligibility requirements.
Another important relaxation would be in the share lock-in period. Currently for firms listing on the main bourses, promoters have a three-year lock-in up to a minimum threshold and beyond that a one-year lock-in. For other shareholders, the lock-in is one year. SEBI has proposed to have a uniform six-month share lock-in post issue for those listing in the platform.
The minimum trading lot on the said platform shall be of Rs 5 lakh while the minimum initial investment shall be Rs 10 lakh, thereby restricting it to larger investors to take into account the higher risk factors.
However, to provide for a route for sale of shares converted from employee stock options, it said the threshold limit on trading lot may be lowered for sale of shares by the employees.
Moreover, for venture capital and private equity firms which are required under the SEBI (Alternative Investment Funds) Regulations, 2012 to invest a certain minimum amount in unlisted securities, investment in shares of companies listed on this platform may be treated as investment in 'unlisted securities' for the purpose of calculation of the investment limits.
SEBI said the platform would be restricted to firms in the knowledge-based technology sector, where no person (individually or collectively with persons acting in concert) holds 25 per cent or more of the pre-issue share capital. This could prove critical and a dampener as usually startup co-founders own over 25 per cent each with most owning a majority stake.
SEBI has asked for public comments on its proposals by April 20.
Click here for the full draft proposals.
(Edited by Joby Puthuparampil Johnson)