SEBI to relax start-up net worth norms, allow listing on SME platform

SEBI to relax start-up net worth norms, allow listing on SME platform

Move follows failure of ITP to attract start-ups; many have raised money from PE investors and have much higher networth to qualify for the platform

Market regulator Securities and Exchange Board of India (Sebi) is planning to allow start-ups to list on the small and medium enterprises (SME) platform of the stock exchanges. Sources say start-ups will be given special relaxations on the SME platform in terms of net worth requirements and profitability. The move comes after Indian stock exchanges in coordination with Sebi held several discussions with both the industry participants and to come up with a new framework for start-up listing.

The move comes after Institutional trading platform (ITP), a special segment for listing of new-age companies, failed to take-off.Sources say the idea behind the move is to provide capital raising opportunities to small and mid level start-ups who cannot list on the main board for the higher compliance norms and at the same time are reluctant to consider ITP platform. Although the ITP platform was designed to facilitate start-up listings, companies have not been keen due to several factors including liquidity on the platform.

On the other hand, SME platform has been successful in catering to the capital requirements of small size enterprises with more than 200 listings till date.As per the Sebi listing regulations, a company listing on the start-up platform can have a maximum networth of Rs 10 crore to qualify for an SME listing. However start-ups who have raised money from private equity investors have much higher networth to qualify for the platform.

Since a large part of start-ups are either private equity (pe) or angel investor backed, the market regulator could also introduce the concept of professionally managed companies for SME segment. Such a tweak would enable pe investors and angel funds to get an exit through SME IPO without having to oblige with the compliance requirements of a promoter. Current rules need promoters to own atleast 20 per cent stake in the company and also mandates them to have minimum three years of experience in the same line of business.

“The discussions are currently in an advanced stage and we could expect an announcement in the next one month. Not just Sebi, even stock exchanges have reached out to the new-age companies seeking inputs.If the relaxations are provided, SME platform would emerge as a viable option for start-ups to raise capital,” said a source privy to the development.

The Business Standard, New Delhi, 14th March 2018

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