The Securities and Exchange Board of India (SEBI) is examining whether investors in start-ups can be granted special rights in terms of board representations and governance if such ventures list on the Innovators Growth Platform (IGP).
As part of its attempts to attract start-ups and investors to the platform, the capital markets regulator is examining whether investors, including those that have convertible instruments, could have special rights such as board representation and appointment of auditors or internal auditor, among other rights. According to a memorandum presented to the SEBI board, ahead of its meet in December, market participants have suggested such special rights to investors. SEBI has reportedly decided to examine the matter.
“Suggestions have been made that the investors could have special rights, including on convertible instruments, and governance, such as board representation, appointment of auditor/internal auditor, and the like, if such rights can be incorporated as part of Articles of Association of the company and disclosed in the RHP/Prospectus,” the memorandum said. The issue of special rights, it is believed, will be examined by the SEBI in conjunction with the issue of differential voting rights, which is already being examined by a sub-group within PMAC [primary market advisory committee].
Regulatory framework
Apart from the SEBI, market intermediaries such as exchanges, merchant bankers and investors have also been trying hard to create a regulatory framework to encourage start-ups to list on Indian exchanges.
“Start-ups have different set of investors such as angel, seed, venture capital, etc., who usually come with special rights in terms of information access, governance and exit, among other parameters,” Mahavir Lunawat, managing director, Pantomath Capital Advisors, said.
“When such start-ups pursue public listing, special rights are required to be foregone by investors, which could become a stumbling block. Listing mechanism could, therefore, encourage continuity of special rights as to governance etc., which do not potentially jeopardise the overall common rights,” Mr. Lunawat added.
Last month, SEBI tweaked the norms for the technology start-up platform. Apart from renaming the segment, it relaxed various regulatory requirements. This included lowering the number of allottees in a public issue from the earlier 200 to 50, reducing the lot size from the earlier ₹10 lakh to ₹2 lakh, and including qualified institutional buyers and Category III foreign portfolio investors among others 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.
