Market regulator SEBI on Tuesday allowed start-ups and small and medium enterprises (SMEs) to get listed on bourses without making an initial public offering (IPO), while new rules have been put in place for angel investors.
To ensure that investments are genuine, angel investors would be allowed to put in their money in only firms incorporated in India and that are not more than three years old.
During its meeting in Mumbai on Tuesday, SEBI board approved the amendments of rules to permit listing of start-ups and SMEs in Institutional Trading platform (ITP) without having to make an IPO.
Lack of exit opportunities for existing investors and restricted access to new investors is a major problem faced by start-ups and SMEs.
SEBI said the proposal has been approved with a “view to provide easier exit options for informed investors like Angel Investors, VCFs and PE etc. to provide better visibility, wider investor base and greater fund raising capabilities to such companies”.
According to SEBI, the minimum amount for trading or investment on the ITP will be Rs. 10 lakh. Such companies would also be exempted from the requirements of having to offer up to 25 per cent of its shareholding to public through an offer document in order to get listed.
“Therefore the listing can be done without an IPO and the expenses associated with it. While such companies are listed on the ITP they will not be permitted to raise capital, though they can continue to make private placements,” it said.
Further, the market watchdog said that listing on ITP by start-ups and SMEs is expected to offer their existing investors better chances to find alternate buyers than if they search using their own network in the investment community.
“Standardised norms of entry for companies, eligibility criteria, continuous disclosure requirements, simplified exit rules and corporate governance norms will be prescribed,” SEBI said.
Meanwhile, angel funds are required to have a corpus of at least Rs. 10 crore and minimum investment by an investor should be Rs. 25 lakh. “Further, the continuing interest by sponsor/manager in the angel fund shall be not less than 2.5 per cent of the corpus or Rs. 50 lakh, whichever is lesser,” SEBI said.
Among others, investment in a company by an angel fund should not be less Rs. 50 lakh and not more than Rs. 5 crore.
Also, this investment should be held for a period of at least three years.