Since a large part of start-ups are either private equity (pe) or angel investor backed, the market regulator 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.
“The discussions are currently in an advanced stage and we could expect an announcement in the next one month. Not just Sebi, even stock exchanges have reached out to the new-age companies seeking inputs. If the relaxations are provided, SME platform would emerge as a viable option for start-ups to raise capital,” said a source privy to the development.
ON THE CARDS
to allow start-ups to list on the SME platform
* New-age companies to be exempt from maximum net worth norms of SME platform
* Since many start-ups are private equity or angel investor-backed companies, definition of professionally managed company to be introduced for SMEs
* This would relieve strategic investors from complying with requirements for promoters
* This step by Sebi comes after the ITP platform failed to take off due to liquidity concerns
Unlike the main board issuances, Sebi doesn’t directly regulate the SME IPOs. Under the Issue of Capital and Disclosure Requirements (CDR) regulations, stock exchanges have been vested with the powers to scrutinise and approve all the IPO documents of SMEs. The companies listed on SME platform also file earning results once in six months as against once in three months by the main-board companies.
Experts say, there are lots of start—ups in India who have genuine capital requirements. The issue is more relevant in the context of smaller start-ups where the big-ticket venture capitalist firms don’t invest. Many of such smaller start-ups are forced to shut down due to lack of financial resources.
“There are many start-ups who need growth capital. While bigger start-ups can always tap PE investors for further capital, smaller ones have limited options to raise capital currently. Providing a platform for them to list would be a positive step not just for these companies but also for the investors as they get an opportunity to be a part of the growth story,” said Harish HV, partner, Grant Thornton.
Sebi had come up with the ITP regulations in 2015 to facilitate listing of the new age companies. However the platform failed to attract companies due to compliance requirements and also concerns about liquidity in the platform. Also the fund raising scenario in the segment has also witnessed a drastic change. Back then, there was a flush of investments from PE and VC investors into start-ups. But things look different now as fresh investments have relatively dried up and the valuations of the companies has also come down due to lack to demand.