India's market regulator, Securities and Exchange Board of India (SEBI), has proposed a number of relaxations for new-age ventures in sectors like e-commerce, data analytics and biotechnology to raise funds and get their shares traded on stock exchanges to kickstart listing of startups in India.

The proposed changes, likely to be discussed at Sebi's board meeting this week, also include renaming the 'Institutional Trading Platform', that SEBI had created for startups to list without much red tape, as -- 'Innovators Growth Platform'.

SEBI has also agreed to consider further relaxations in future over the time.

The proposed changes that SEBI has considered include doing away with the requirement of at least 50% of pre-issue capital being held by qualified institutional investors.

It has been proposed that 25% of pre-issue capital for at least two years should be with qualified institutional investors, a family trust with net worth of at least Rs 500 crore, well-regulated foreign investors and a new class of "accredited investors".

The accredited investors can be individuals with a total gross income of Rs 50 lakh per annum and minimum liquid net worth of Rs 5 crore, or a corporate with a net worth of Rs 25 crore, and they can hold up to 10 percent stake before listing.

It has also agreed to do away with a cap of 25 % holding for any person, individually or collectively with persons acting in covert, in the company's post-issue capital. The cap is being removed to ensure that investors are able to invest more than 25 percent in a startup, thus providing the much-needed boost to such companies.

SEBI has also proposed to reduce the minimum application size for share offers to Rs 2 lakh, from Rs 10 lakh earlier, to attract more investors to the new platform.

Another key provision that could be dropped involves 75 percent of the net offer to be allocated to institutional investors and the remaining 25% to non-institutional investors. It has been now recommended that there should be no minimum reservation for any specific category of investors.

The requirement to limit allocation to a single institutional investor at 10% is also being dropped.

SEBI is also planning to reduce the minimum number of allottees to 50, which is 200 under the current regulations.

However, SEBI plans to retain the existing provisions for lock-in to lend confidence to the entities investing in such a company. The regulations require minimum six-month lock-in of the entire pre-issue capital of the shareholders, though there are exemptions for shares arising out of employee stock options and shares held by venture capital funds and certain other investor classes.

The minimum trading lot will be reduced from Rs 10 lakh to Rs 2 lakh to increase liquidity and make the platform more attractive.

SEBI has also proposed to reduce the time period from three years to one year for the company listed on the start-up platform to the main board of the stock exchange, subject to compliance with the exchange requirements.

Another key proposal is fixing the minimum offer size at Rs 10 crore.

There have also been demands for investors being allowed to have special rights including on convertible instruments and governance, such as board representation and auditor appointments.

These demands, along with the issue of differential voting rights, are being examined by a sub-group within SEBI's Primary Market Advisory Committee and the regulator would take a call at an appropriate time, officials said.

The relaxation in the norms is because of less enthusiasm of market towards existing platform and demands from various stakeholders to make the norms easier and the platform more accessible in the wake of expanding activities in the Indian startup space.

While there has been a growing interest among the startups to get listed, their intention has failed to convert into the actual listing in a big way and many of them have cited difficulties in meeting the compliance requirements.

To review the startup platform, SEBI had set up in June this year an expert group that included representatives from the the Indian Software Product Industry Round Table, the Indus Entrepreneurs (TiE), the Indian Private Equity and Venture Capital Association, law firms, merchant bankers and stock exchanges.

The Group also held extensive consultations with other stakeholders including startups, investors, bankers and wealth management firms and subsequently submitted its report to SEBI, which later floated a public consultation paper on the proposed changes.

Source - Bloomberg Quint

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