Sebi may change start-up fund-raising norms

The Primary Markets Advisory Committee (PMAC) of the Securities and Exchange Board of India (Sebi) is scheduled to meet on May 30 to discuss changes to the regulations relating to fund raising by start-ups.

Sources said changes that PMAC may approve, include decreasing the minimum lot size to Rs2.5 lakh from Rs10 lakh and reducing the minimum ticket size for participation in start-up initial public offerings (IPOs) to

Rs5 lakh from Rs10 lakh, currently. Moreover, it may suggest a reduction in the timeline for migrating from the start-up platform to the mainboard from three years to two years.

An investment banker and member of PMAC, told FE that the recommendations would take into consideration the feedback received from the start-ups and investment banking community. “Along with a request to lower the minimum ticket size, start- ups have also asked to tweak the six month lock-in period clause that applies to all the shareholders. Based on the feasibility, we will finalise the recommendations,” the investment banker said.

According to Harish HV, partner at Grant Thornton, the minimum lot size should not be the same as the minimum ticket size as liquidity of the stock may get affected.”So if an investor bought shares worth

Rs10 lakh and the value of his investment falls to, say Rs9.9 lakh because of decline in share prices, the investor would not have an opportunity to exit until the value of investment climbs back to Rs 10 lakh or above,” Harish said.

In August 2015, the markets regulator had announced a new set of listing regulations for start-ups operating in the e-commerce space in sectors such as information technology (IT), data analytics and biotechnology. The regulations provided several relaxations to startups keeping in mind the unique nature of the industry including removal of caps on the money spent by start ups on publicity and advertisements as they need to spend much more for such purposes.

According to the Sebi Capital Raising Regulations, start-ups would be listed on a special Institutional Trading Platform (ITP) and only institutional investors and high net worth individuals (HNIs) will be able to trade on it. The retail investors were not allowed to invest in such issues as the markets regulator felt small retail investors need to be safeguarded against a higher level of risks associated with the platform.

In 10 months of its existence, the ITP platform has not seen even a single start-up lisiting. Infibeam, an e-commerce company that went for an IPO during the current calendar year, chose to list on main board instead of the ITP. Although the company filed its draft prospectus with the regulator before Institutional Trading Platform (ITP) was announced, the company had a choice subsequently to migrate. However, investment bankers said the company didn’t choose ITP platform due to concerns about the platform, investment bankers told FE.