In special relaxations, market regulator Securities and Exchange Board of India (Sebi) is planning to allow startups to list on the small and medium enterprises (SME) platform of the stock exchanges as an opportunity to raise capital apart from usual private equity and angel investment funding route.
SME exchange is a stock exchange dedicated for trading the shares of SMEs who, otherwise, find it difficult to get listed in the main exchanges — NSE and BSE, in India. The concept originated from the difficulties faced by SMEs in gaining visibility or attracting sufficient trading volumes when listed along with other stocks in the main exchanges. BSE has named its SME platform as BSESME while NSE has named it as Emerge.
The startups will be given special relaxations to list on the SME platform in terms of net worth requirements and profitability. The move comes after Indian stock exchanges, in coordination with Sebi, held several discussions with both the industry participants to come up with a new startup listing framework.
The idea behind the move is to provide capital raising opportunities to small and mid level startups who cannot list on the main board for the higher compliance norms.
As per the Sebi listing regulations, a company listing on the startup platform can have a maximum net-worth of Rs 10 crore to qualify for an SME listing. However startups who have raised money from private equity (PE) investors have much higher net-worth to qualify for the platform.
However, as startups are mostly either PE or angel investor backed, Sebi could also introduce the concept of professionally managed companies for SME segment. Such a tweak would enable PE investors and angel funds to get an exit through SME IPO without having to oblige with the compliance requirements of a promoter. Current rules need promoters to own atleast 20 per cent stake in the company and also mandates them to have minimum three years of experience in the same line of business.
If the relaxations are provided, SME platform would emerge as a viable option for startups to raise capital and even startup investors would also have greater chance to exit early.
Notably, Sebi is contemplating on startup listing norms since 2015.
According to industry experts, the one thing that could have really triggered Sebi to consider changes in the startup listing platform is the fact that the Institutional Trading Platform (ITP) is yet to see any start-up listing ever since an easier disclosure requirements and set of compliance was notified three year ago, in August 2015.
The sorry state of funding in India’s Startup ecosystem for last couple of years is continuing its run even in the new year. So much so that it has now become a matter of common knowledge all around the world. Anticipating the tough times ahead, several India-based startups like GirnarSoft (company behind auto portals CarDekho, Gaadi and ZigWheels), ShopClues and Policy-Bazaar etc. are now contemplating listing themselves on the American stock exchange, Nasdaq, which already has the shares of several other Indian companies like Azure Power, MakeMyTrip and Yatra Online currently trading on it.
The above development was first reported in Business Standard.
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