This is SEBI’s gift to India’s startups!

If you are a startup founder, and are planning to raise fund for your company, here comes the good news. An Economic Times report revealed that the Securities and Exchange Board of India (SEBI) will outline a new set of rules to help startups to list on the Indian bourses.

As per the financial daily, the capital market regulator will also relax disclosure norms relating to use of funds raised in maiden public stock offering by startups.

The fact remains that most of the startups, which are backed by angel investors and venture capitalists (VCs), are running in losses. These companies may not even woo attention of many retail investors. The SEBI fears that an absence of listing opportunity in India could drive these startups to tap overseas stock exchanges, which offer easier listing facilities.

A person familiar with the SEBI’s discussions told the ET, the market regulator is intending to define 'startups' as "professionally managed companies". In a startup, no single stakeholder or interest group holds 25% or more of its market shares. The financial daily also said that a large number of unlisted startups have a backing of VCs, private equity (PE) houses and ultra high net worth individuals. It must be noted that the founders hold comparatively lower stakes.

Sandip Bhagat, partner at law firm S&R Associates, told the ET, "It would greatly help to remove the requirement of having an identified promoter or requiring 20% of post-IPO shares to be locked up as promoter contribution.”

Bhagat also asserted, “Founders of many startups may not have the necessary shareholding to lock up 20% of post-issue capital for three years as that would be diluted with progressive rounds of new investment and the private equity and strategic investors may well hold a larger stake. Also, PE and strategic investors would not want to be named as promoters and carry additional risk and liability."
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