Enlisting Norms for Startups

India is ranked fifth in the world in startups after the US, the European Union, Canada and China, and homegrown companies such as Flipkart, Snapdeal, Paytm and Ola Cabs have achieved steep valuations in a short period through successive funding rounds. There are over 3100 operational startups in the country. Many startups were aspiring to list abroad because according to them the regulatory system in the country is not favourable. The Securities and Exchange Board of India (SEBI) relaxes norms and sets guidelines for startups to resolve issues of raising funds.

The new platform to raise capital will be called the Institutional Trading Platform (ITP). This platform will be available for technology companies with at least 25 per cent pre-issue capital held by Qualified Institutional Buyers (QIBs) and non technology companies with at least 50 per cent pre-issue capital held by QIBs. No person (individually or collectively with persons acting in concert) in such a company should be more than 25 per cent post issue capital. There is no limit for raising funds to the company depending upon its business for general corporate purpose. There is a  lock in period of six months of entire pre-issue capital from the date of allotment for all shareholders.

The institutional investors with net worth more than Rs 500 crore and Non-Institutional Investors (NIIs) other than retail investors can access ITP. The allotment to Institutional investors is on discretionary basis while on proportionate basis to NIIs in case of public offer. This allocation between institutional investors and NIIs will be in the ratio of 75 per cent and 25 per cent respectively. The number of allottees will be at least 200. The minimum trading lot for it will be of Rs 10 lakh.

This new move of SEBI will encourage startups to set up headquarters in the home country rather than abroad as many have headquarters at Singapore to list from a  future perspective. This may bring back headquarters of such startup firms to India from abroad. The regulator facilitates an exit route to the investors through an IPO. 

Venture capitalists invested USD 4 billion across 300 deals across India in 2014 almost double than the previous year. The regulator eases listing process norms and makes them smooth and simple enough for startup companies. According to SEBI only high net worth individuals (HNIs) participate in this process with an ability to take risk and judge the quality of companies. The retail investor is protected by not allowing them to invest into these companies because of high risk factor.