The Securities and Exchange Board of India (SEBI) is trying to create a platform like Nasdaq for technology start-up firms in India by tweaking the norms for the Institutional Trading Platform (ITP), which now — apart from a new name — boasts of a framework largely based on the feedback received from industry participants, including early stage companies and investors in the start-up community.
Last week, the SEBI board approved a host of amendments in the old rules, including lowering the number of investors in a public issue and the minimum application size while removing the 25% cap on holding.
The watchdog has decided that the start-up platform, which will now be known as Innovators Growth Platform (IGP), will also act as the main board for such firms thereby creating a separate and dedicated platform for sectors like technology, intellectual property, data analytics, biotech or nanotech.
This is on the lines of the Nasdaq in the U.S., which boasts of technology and new-age firms such as Google, Netflix, Alibaba, Microsoft, Apple, Amazon and Facebook. The older New York Stock Exchange has companies like Berkshire Hathaway, Johnson & Johnson and ExxonMobil listed on it.
“Stakeholder consultation revealed that start-up dynamics are significantly different and a need was felt for a dedicated marketplace for technology driven start-ups on the lines of Nasdaq,” said Mahavir Lunawat, MD, Pantomath Capital Advisors, the largest investment banking entity in the SME segment.
Attracting investors
“Globally, different capital market platforms are prevalent, catering to businesses at different stages of life cycle. In India, the SME platform is [becoming] a significant enabler of growth funds for emerging businesses. However, very few start-ups tapped SME platforms,” he added. Mr. Lunawat was also part of the SEBI committee that was formed to look into the concerns that start-ups were facing with respect to listing.
Some of the changes that SEBI has mandated for the segment include lowering the lot size from the earlier ₹10 lakh to ₹2 lakh and including qualified institutional buyers and Category III foreign portfolio investors in the list of eligible entities holding pre-issue capital.
The regulator has also done away with the 25% cap on post-issue holding by any person individually or collectively with persons acting in concert while lowering the minimum number of allottees from 200 to 50.
“It (IGP) can provide much-needed liquidity to investors of these risky assets and therefore will attract newer investors,” said Manish Kumar, co-founder, GREX and RealX.
“The only reservation I have is the regulator may have brought the minimum investment threshold a bit too low. Therefore, we need to [watch out] for possible market manipulations. Should investors lose money in this asset class too early or too much, ... it may shake the belief in these companies.”
