Share in start-up pie gets expensive

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

-Isha Kothiyal, MBA 2014-16, Vinod Gupta School of Management, IIT Kharagpur.

On 30th March, 2015, The Hindu had published a report regarding the new norms to be finalised by June for incentivising start-ups to get listed in the domestic market. The Securities and Exchange Board of India (SEBI) has proposed to provide a separate platform to start-ups in the e-commerce and technology space that will ease the process of raising capital.

On 31st March, 2015, Business Standard reported that SEBI had prescribed a ticket size of ten lakh rupees for individual investors who wished to get listed.” The start up platform will mainly be for institutional investors and other investors will need to have a minimum investment ticket size of 10 lakh rupees. Those investing less than that will not be permitted”, said SEBI chairman U K Sinha.

As per the discussion paper released by Sebi, minimum trading value should be at least 5 lakh rupees and as much as 75 percent of the allotment should be to institutional shareholders. Post IPO lock-in period for start ups would be six months. The companies listed on the main bourse have a lock in period of 3 years. The disclosure requirements and profitability record for start-ups has been relaxed as they are allowed to be loss making, despite being listed. But these are not eligible to be part of NIFTY, SENSEX, etc.

This move will definitely benefit the start up companies in technology and e-commerce space to raise capital easily, thereby, preventing these companies from exploring foreign listing options. High ticket size will ensure that only HNI and institutional investors, who understand these companies well, invest and small investors, who lack a good understanding of such businesses, are discouraged from investing.



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