Indias Proposed IPO Norms For Startups Will Prompt More Exits
Sebi has also released this consultation paper keeping in mind the upcoming young class of investors who want to purchase stocks in high-growth firms over gold and other asset classes, experts said.
“If Indian investors want to invest in startups, the only option they have is to become limited partners in venture capital funds. However, they don’t manage the fund and cannot choose their portfolio. There is also an option of secondary trade of ESOPs. However, this is expected to change if Sebi’s proposals come into effect, as more individual retail investors will be able to invest in startup IPOs,” said Santosh N., managing partner at D and P India Advisory LLP, a consultancy.
These changes come in the wake of institutional investors in startups recommending that the government open newer streams of exits for Indian startups through the public markets.
The predominant form of exits for institutional investors at present continues to be largely through lateral stake sales where a new investor buys the stake of existing shareholders.
“There is some confidence among young investors, who are ready to invest in startups versus gold markets and other asset classes. The public markets have matured considerably, and now there is appetite for startup IPOs. Even Sebi understands that beyond a point startups struggle to go public and give investors the right exits. This move is aimed at changing that,” said Abhinav Bhalaik, partner, AlgoLegal, a legal firm that provides consulting for venture funds and startups in fund-raising.
Sebi also proposed allowing startups to allocate up to 60% of the issue size on discretionary basis, prior to the issue, and exempt Alternative Investment Fund (AIF) Category II investors from the post issue lock-in requirement of six months. It has recommended that even family trusts be included in accredited investors definition.
Analysts and investors said the move has aims to allow QIBs and AIFs to participate with more flexibility in the pre-issue and help startups get credible investors onboard before the public offering.
“One of the key recommendations is to reduce the investor holding period from two years before listing to one year. This itself can be a catalyst in boosting the funding volumes as investors would want to enter and exit throughout the different stages of the startup’s lifecycle,” said Ankur Bansal, co-founder and director, Blacksoil, a venture debt provider.
Analysts and investors said the move has aims to allow QIBs and AIFs to participate with more flexibility in the pre-issue and help startups get credible investors onboard before the public offering.
“One of the key recommendations is to reduce the investor holding period from two years before listing to one year. This itself can be a catalyst in boosting the funding volumes as investors would want to enter and exit throughout the different stages of the startup’s lifecycle,” said Ankur Bansal, co-founder and director, Blacksoil, a venture debt provider.
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