Promoter? No, it’s entrepreneur! – How SEBI rewrote its regulations for startups in 100 days


In what was considered lightning fast for a regulatory body, the Securities and Exchange Board of India (SEBI), took only 100 days to come up with the most recent discussion paper on regulation for startups released two days ago.

To know where it all started, let’s rewind back to 100 days ago.

On December 19, 2014, UK Sinha, Chairman of SEBI, along with his management team, patiently listened to the journeys of eight product startups, comprising InMobi, Ezetap, Exotel, HotelLogix, iViz, Paytm, QuickHeal, and, over a meeting organized by the Indian software products startups think-tank, iSPIRT.

The sole objective was to understand the perspectives of SMEs (small and medium enterprises) and startups in the changing landscapes of both capital markets and consumer markets. It was a candid discussion, where startups voiced concerns and raised issues pertaining to the current regulations binding entrepreneurs.

At the end of the interaction, which lasted more than five hours, it was clear that SEBI needed to build a new paradigm not just for listing purposes, but also for market regulation and growth purposes of this new generation of companies.

Some of the most radical changes:

  1. A new listing platform: The Institutional Trading Platform is the most radical proposal issued by SEBI in recent times. This listing platform, just like any other NYSE or NASDAQ in the US, will allow small and medium enterprises (SMEs) or startups to be listed without having to make an IPO.

This proposal was made after taking into consideration private investors, such as angel investors and venture capital funds, which invest heavily in such small and medium companies. The traditional business models usually only depended on cash credits and debt investments from public sector banks.

  1. No more small investors: When companies filed for IPOs, the regulations always tried to protect small investors from losing money investing in such companies. Now investors can only purchase shares worth 10 lakhs or above on the ITP, while the maximum number of investors cannot exceed 500. Rumours have it that this number could come down to five lakhs by June, when the final regulations will be made public.
  2. We don’t care about profits: Earlier, companies that wanted to make an IPO had to show significant profits for over three years. SEBI has understood that the success of a startup or SME does not necessarily reflect in the balance sheet. Hence, companies that “do not incur profits in the initial years, but have potential to grow in a big way in a short time frame,” are encouraged to list on the ITP.
  3. The F word: In the past, the term “promoter” was used most often to describe the sole owner of the business as the one who led the business operations of the company. Now there are new terms, “founder” and “founding members,” who are accepted even if he/they own only a small fraction of equity in the business to lead the operations of the company.

What this means for India:

Apart from the obvious effect, where more companies list in India, as opposed to listing in the US or Singapore, there will be a great socio-economic effects in the country.

When a company lists itself on a trading platform in a certain country, it essentially writes off its wealth to that country. The revenues/successes of these companies start reflecting on the GDP of the hosting country.

“We don’t want all our Flipkarts, Quickheals and InMobis to donate their billions of dollars of wealth to some other country, when all we had to do was tweak a few things here and there to make sure these companies list here,” said Sharad Sharma, Co-founder of iSPIRT.

He also added, “It is remarkable that all this happened in just 100 days!”

The discussion paper released on March 31 is available on the SEBI website. It is open for public comments until April 20. Comments can be e-mailed to

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