SEBI proposes new fund-raising platform for start-ups

To help start-ups and young entrepreneurs raise funds, the Securities and Exchange Board (SEBI) of India today proposed an ‘Alternate Capital Raising Platform’, wherein such firms can raise money from institutions and HNIs from the capital markets under a relaxed regulatory regime.

However, retail investors would be restricted from investing in such companies, given the risks involved therein, SEBI said, while adding that the adequate disclosures would be required to be made without hampering the capital-raising potential of such firms in new-age sectors like technology.

The move is aimed at helping such companies raise funds from within India and stop their flight to overseas markets.

SEBI has sought public comments on the proposal by April 20 this year.

Under the proposed alternate capital raising platform, money should be raised only from institutions and high net worth individuals by the new-age companies having innovative business model and belonging to knowledge-based technology sector.

“On account of the risk involved in investing in such companies, it is proposed that retail investors be restricted from investing in such companies,” SEBI said in a discussion paper on ‘Alternate Capital Raising Platform’

For want of a price discovery within the country, many of these companies plan to get listed in Singapore or the US.

It is proposed that the new platform for raising money within the country will be initially made applicable to companies which are in the area of software product development, ecommerce, new-age companies having innovative business model.

Besides, SEBI has proposed that capital raising would be allowed on the Institutional Trading platform (ITP). The proposed platform will have two categories of investors — Qualified Institutional Buyers (QIB) and Non-Institutional Investors (NII). It has been suggested that the family trusts may also be allowed to apply under the QIB category.

The listing on institutional platform would be for a period of at least one year. After that, the company would have the option to migrate to main board subject to compliance with eligibility requirements of the stock exchanges.

According to SEBI's proposal, companies where any person (individually or collectively with persons acting in concert) holds 25 per cent or more of the pre-issue share capital should access capital through the existing main board.

These firms would be required to file draft offer document with SEBI for its clearance.

The companies should raise funds for general corporate purpose. Further, the disclosure should be restricted to only broad objects in line with the major international jurisdictions.

Allotment to QIBs may be on a discretionary basis whereas to NIIs it should be on proportionate basis. Allocation between the two segments would be in the ratio of 75 per cent and 25 per cent respectively.

As per the proposal, the entire pre-issue capital should be locked-in for a period of six months for all shareholders.

The basis of issue price should include disclosures, other than projections, as deemed fit by the issuers accessing the market on the institutional platform in order to enable investors take informed decisions.

The discussion paper was floated after various suggestions in this regard were deliberated in the Primary Market Advisory Committee of SEBI.

Also, SEBI has proposed to review other regulatory requirements. These changes in the existing framework would be applicable to all issuers irrespective of the listing on main board or the institutional platform.

It suggested to extend the definition of QIBs to include important NBFCs, family offices/trusts. Further, any other entity registered with SEBI having a minimum net-worth of Rs 500 crore should also be considered as a QIB.