Securing investments for startups just got a lot easier. SEBI recently announced its ambitious plan to set up an Institutional Trading Platform (ITP), exclusively for listing of startups. The decision comes as a move to provide support and much needed impetus to these new age enterprises, to allow them to realize their full potential. Eased listing requirements and relaxed disclosure norms will now make raising funds a breeze for startups.
The move comes amid fears of an exodus of startups by the way of listing on foreign bourses. Earlier norms made it extremely difficult for startups to enter the Indian stock market, which led to many of these organizations thinking on the lines of listing on foreign exchanges where the norms are more relaxed. In order to tap the ITP, for technology companies 25% of the pre-issued capital has to be held by Qualified Institutional Buyers (QIBs) and for non-technology companies this parameter has been set at 50%. Startups will now be able to list on this alternative platform where investment can be made only by institutional investors. Retail investors have been kept at bay from this investment platform due to the risk involved on account of relaxed compliances and absence of profitability track record of startups. To keep out retail investors, the minimum application size and trading lot for such issues has been set at Rs. 10 lakh. Startups have the option of migrating to the main stock exchanges after a period of three years, which will permit investment by retail investors, indirectly, through mutual funds. Another bonus comes in the form of relaxed disclosure requirements. Startups will have to disclose the purpose of the issue only on broad lines and there is no prescribed limit for the amount raised for general corporate purposes. In contrast, listing on the other domestic stock exchanges requires specific details regarding the objects for which funds are being raised and limits the funds that can be raised for general corporate purpose at 25% of the issue.
Experts have hailed this development and consider it to be a move in the right direction. Deepak Dhamija, co-founder of Aristotle Consultancy, said “This development will definitely put India on the global map of progressive financial markets. Liberal capital market listing will encourage innovation.” Startups are definitely going to get the much required boost, which will ultimately benefit the Indian economy by attracting a lot of investment. India currently has over 3000 startups and easing fund procurement policies is only going to lead to a spurt in this number. However, India still has a long way to go. Countries like the US, UK and Singapore have a long existing and more developed funding platform for startups. Their markets provide a much more conductive environment for startups to raise funds. It will definitely take a long time for this trading platform to become as competitive as its international counterparts.