<div><em>The newly proposed institutional trading platform for start-ups is going to put Indian regulation on the global map of being investor friendly, says <strong>Vishal Krishna</strong></em><br><br>There have been several start-ups that had the potential to list on the Indian bourses if such an opportunity had existed in the past. The entrepreneurs of popular start-ups such as RedBus, Myntra and BookPad exited, selling off to large companies (Naspers, Flipkart and Yahoo), because the only card they could play was to either to sell or merge their companies. The Indian entrepreneurial community registered their parent companies in Singapore or New York or Hong Kong because of easier listing norms. They also went to those cities because of the tax norms and easy exit offered to private capital. Sensing a loss in value for Indian entrepreneurs the Securities and Exchange Board of India (SEBI) has finally agreed to create an Institutional Trading Platform exclusively for startups, which will be part of the BSE-SME platform. Thanks to the experts, such as Rajeev Khaitan, of Khaitan and Company, Sudhir Sethi, of IDG Ventures and Mohandas Pai, chairman of Manipal Global Education Services, Sebi, is in the process of releasing a blue print for listing startups. However, for now the entire details have not emerged in full because the regulator has laid out some procedures of how a startup could list in India (See guidelines to listing table). What it means now is that the likes of Flipkart and Snapdeal have a chance to go public without showing profits and the intrinsic long term nature of the ecommerce business is validated. These firms can now survive in the long run with institutional capital and not be dependent on short term capital.</div><div> </div><div>“The move allows investors to exit in India and it allows entrepreneurs to build long term businesses,” says R Natarajan, CFO of Helion Ventures. He adds that this discussion was in the making for the last three years and has finally come to fruition. The trading platform will allow companies to list in the Bombay Stock Exchange Sensex at the company’s discretion on the basis of their growth.</div><div> </div><div>“India has several startups solving problems related to the country and offer global solutions. For founders, it is a great way to raise capital,” says Sanjay Swamy, founder of Angel Prime Partners. He adds that this platform would be investor friendly and promise exits.</div><div> </div><div>Reports add that $1.5 billion, worth of private capital, flowed in to India in the first half of the year. Most of these are Venture Capital investments that come in for five years. An exit within the country and that through an IPO will make India a startup friendly nation. May be global investors are smiling now and Indian entrepreneurs have a reason to cheer up. </div><div> </div><div><strong>Here is what Sebi has proposed</strong></div><div><span style="color:#ff0000;"><strong>The Guidelines</strong></span></div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>The platform shall now be called as Institutional Trading Platform (ITP) and shall facilitate capital raising as well.<br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>The said platform will be made accessible to: a. companies which are intensive in their use of technology, information technology, intellectual property, data analytics, bio-technology, nano-technology to provide products, services or business platforms with substantial value addition and with at least 25% of the pre-issue capital being held by QIBs (as defined in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009), or b. any other company in which at least 50% of the pre-issue capital is held by QIBs. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>No person (individually or collectively with persons acting in concert) in such a company shall hold 25% or more of the post-issue share capital. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>Considering the nature of business of companies which may list on the said platform, disclosure may contain only broad objects of the issue and there shall be no cap on amount raised for General Corporate Purposes. Further, the lock in of the entire pre-issue capital shall be for a period of 6 months from the date of allotment uniformly for all shareholders. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>As the standard valuation parameters such as P/E, EPS, etc. may not be relevant in case of many of such companies, the basis of issue price may include other disclosures, except projections, as deemed fit by the issuers. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>Companies intending to list on the proposed ITP, shall be required to file draft offer document with SEBI for observations, as provided in SEBI (ICDR) Regulations, 2009. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>Only two categories of investors, i.e. (i) Institutional Investors (QIB as defined in SEBI (ICDR) Regulations, 2009 along with family trusts, systematically important NBFCs registered with RBI and the intermediaries registered with SEBI, all with net-worth of more than Rs. 500 crore) and (ii) Non-Institutional Investors (NIIs) other than retail page: 2 [ www.sebi.gov.in ] individual investors can access the proposed ITP. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>In case of public offer, allotment to institutional investors may be on a discretionary basis whereas to NIIs it shall be on proportionate basis. Allocation between the said two categories shall be in the ratio of 75% and 25%, respectively. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>In case of discretionary allotment to institutional investors, no institutional investor shall be allotted more than 10% of the issue size. All shares allotted on discretionary basis shall be locked-in in line with requirements for lockin by Anchor Investors i.e. 30 days at present. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>The minimum application size in case of such issues shall be Rs. 10 lakh and the minimum trading lot shall be of Rs. 10 lakh. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>The number of allottees in case of a public offer shall be 200 or more. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>The company will have the option to migrate to main board after 3 years subject to compliance with eligibility requirements of the stock exchanges. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>For Category I and II AIFs, which are required under the SEBI (Alternative Investment Funds) Regulations, 2012 to invest a certain minimum amount in unlisted securities, investment in shares of companies listed on this platform may be treated as investment in 'unlisted securities' for the purpose of calculation of the investment limits. Grandfathering of existing companies listed on SME-ITP. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>The existing companies listed on SME-ITP may continue to be guided by the existing regulatory framework for them including applicable relaxations from compliance with corporate governance requirements. Rationalisation of disclosures for proposed ITP as well as main board. <br> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>Further, in order to rationalize the disclosures requirements for all issuers whether intending to list on the main board or the proposed ITP, it has been decided that the disclosures in offer document with respect to group companies, litigations and creditors shall be in accordance with policy on materiality as defined by the issuer. However, all relevant disclosures shall be available on the website of the issuer. Also, the product advertisements of an issuer will not be required to give details of public/rights issue. </div><div> </div>
