SEBI paper puts out new proposals to enable listing of startups

The Securities and Exchange Board of India (SEBI) has released a consultation paper with a new set of recommendations to kickstart the public listing of startups in India.

The paper titled 'Review of framework of Innovators Growth Platform (IGP)' has made a series of recommendations to enable listing of startups. IGP is the proposed vehicle for startup listing is quite different from the SME platform of BSE or Emerge from the National Stock Exchange.

Among the key recommendations put out in the consultation paper is reducing the hold period before listing from the earlier two years to one year. The existing regulation states that 25 percent of the pre-issue capital is required to be held by eligible investors for two years.

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“However, there may be a lot of churn of the investors as the startup goes through various phases. Therefore, the two-year hold period for eligibility to list on IGP may be difficult to meet as eligible investors would want to get regular exits and may get replaced by new investors,” the consultation paper noted.

The other recommendation allows the issuer company to allocate up to 60 percent of the issue size on a discretionary basis prior to the opening of the issue, which is on the lines of the provision which is available for the mainboard of the stock exchanges.

SEBI has noted that the limit on shareholding of accredited investors (AI) only up to 10 percent of pre-issue capital — out of eligibility requirement of minimum 25 percent to be held by eligible investors – may be removed. Also, AIs’ pre-issue shareholding may be considered for the entire 25 percent of the pre-issue capital required to meet eligibility condition norms.

Among other changes recommended were allowing issuer companies seeking listing under IGP to be allowed to issue differential voting rights/superior voting rights to promoters or founders. This found a big favour among the startups as they have various kind of shares in their portfolio with different kind of voting rights.

The startup ecosystem had also sought an exemption to Alternative Investment Fund (AIF)-II category investors from post-issue six-month lock-in provided shares are held for a period of one year from the date of purchase. Currently, equity shares held by a venture capital fund or AIF-I investors or a foreign VC, etc, are exempted from the stipulation. The consultation paper of SEBI has agreed to this exemption.