Monday 22 June 2015

e-IPO for Start-ups

Start-ups is the new craze in graduated Indians. With the success of Flipkart, Housing, Zomato etc, everyone wants to be big in less time. With Private Equity firms like SoftBank, Sequoia Capital pouring money into Indian Start-ups, things are looking easy. India ranks 3rd in the world in the number of Start-ups launched in the year. Yet the billion dollar companies and MSMEs were finding it difficult to raise money from the financial markets and High Net Income individuals. Not a single tech start-up is listed on Bombay Stock Exchange and National Stock Exchange.

In a new wave of reforms, markets regulator SEBI is set to herald an e-IPO system to allow investors to bid online in the public offers, while the new-age startups will get a separate platform to raise funds and list their shares with an easier set of regulations. 

Under the new norms for startups, SEBI will provide ‘Alternate Capital Raising Platform’, which will allow such firms to raise funding from institutions and high net worth individuals from the capital markets. However, due to the risks involved, retail investors would not be allowed to invest in such companies. Besides, the entire pre-issue capital would be locked-in for a period of six months for all shareholders

Besides, SEBI would make easier disclosure norms for startup listing. While filing the draft offer document with the capital market watchdog, such firms would only need to disclose broad objectives in line with the major international jurisdictions. The new regulations are expected to help startup companies raise funds within India and stop their flight to overseas markets.

The Securities and Exchange Board of India (SEBI) may come out with a detailed guidelines on electronic Initial Public Offers (e-IPOs) by June end, where investors can bid for shares on internet. Initially, investors would be able to place bids through internet and by using broker terminals across the country as against the current practice of filing long documents.

SEBI may drastically cut the timeline for listing of shares within two-three days of the IPO as against 12 days. The introduction of e-IPO would help eliminate the printing of application forms, help in reducing the overall cost of public issuance and support companies in reaching more retail investors in small towns.

A framework for the use of mobile applications for making bids in public issues may be presented at the board meeting. Under the norms, investors may also get SMS/e-mail alert for allotment under the IPO, similar to alerts being sent to investors for secondary market transactions.

Hope we see Apple, Google or Alibaba coming from India. It would help both – the initiators and the investors.

- Chaitanya Kulkarni
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