Sebi relaxes listing, fund-raising norms for start-ups

In a major boost for start-ups, capital markets regulator Sebi today relaxed its regulations for them to list and raise funds through a dedicated platform on domestic stock exchanges, rather than going overseas.

Under the new norms approved by Sebi's board today, the stock exchanges would have a separate institutional trading platform for listing of start-ups from the new age sectors, including e-commerce firms, while the minimum investment requirement would be Rs 10 lakh.

For their listing, Sebi has relaxed the mandatory lock-in period for the promoters and other pre-listing investors to six months, as against three years for other companies.
Besides, the disclosure requirements for these companies have also been relaxed, Sebi Chairman U K Sinha told reporters after the board meeting.

At least 25 per cent of their pre-issue capital would need to be with institutional investors for technology start-ups, while this requirement would be 50 per cent for companies from other areas.

Sinha said "Indian start-up space is very vibrant and the country is ranked number five as far as start-ups are concerned. More than 3,100 start-ups are there in the country and a large number of M&As have also happened."

"However, most of these start-ups were thinking of listing outside... We have made a very special provision for start-ups," he added.

Under the new norms, 75 per cent shares can be reserved for institutional investors, while allocation can be on discretionary basis for such investors.

For non-institutional categories, it will be on proportional basis.

Sebi has also provided for reclassification of promoters as public investors provided they let go all their special rights, including voting powers, and do not own more than 10 per cent stake.

However, an outgoing promoter can serve as a CEO or hold other senior positions for up to three years if the same is approved by the company's board. 

Sebi has come out with different corporate governance and disclosure regimes for start-ups seeking to get listed on the exchanges.

The disclosure need to contain only "broad objects of the issue and there shall be no cap on amount raised for general corporate purposes".

Besides, the lock-in period of the entire pre-issue capital would be only for six months.
Since standard valuation parameters such EPS might not be relevant to start-ups, the regulator said the basis of issue price could include other disclosures, except projections.

Institutional investors along with family trusts, systematically important NBFCs (Non Banking Finance Companies) and intermediaries registered with Sebi -- all having net worth of more than Rs 500 crore -- would be allowed to access the Institutional Trading Platform (ITP).

Non institutional investors, excluding retail individual investors, can also tap this platform.
"In case of public offer, allotment to institutional investors may be on a discretionary basis whereas to non institutional investors it shall be on proportionate basis.

"Allocation between the said two categories shall be in the ratio of 75 per cent and 25 per cent, respectively," Sebi said in a release.

Under discretionary allotment, an institutional investor can be given only up to ten per cent of the total issue size.

"All shares allotted on discretionary basis shall be locked in line with the requirements for lock-in by anchor investors, 30 days at present," the release said.

For share sale of start-ups, the number of allottees in case of a public offer should be at least 200.

The company would also have the option to move from the ITP to the main board after three years subject to compliance with eligibility requirements of the stock exchanges.

To rationalise the disclosure requirements for all issuers, irrespective of plans to get listed on the main board or ITP, Sebi said disclosures in the offer document with "respect to group companies, litigations and creditors shall be in accordance with policy on materiality as defined by the issuer".

However, all relevant disclosures should be available on the issuer's website while product advertisements would not be required to give details of public or rights issue.

"The existing companies listed on SME (Small and Medium Enterprises)-ITP may continue to be guided by the existing regulatory framework for them, including applicable relaxations from compliance with corporate governance requirements," the release said.