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SEBI paves way for start-ups to list

Keeping view of the evolving startup ecosystem in the country and with an aim to increase accessibility, the capital markets regulator Securities Exchange Board of India (“SEBI”) has reworked the framework of Innovators Growth Platform under the ICDR Regulations, 2018. The Innovators Growth Platform (“IGP”) is an initiative by SEBI that aims to address capital needs of companies by creating a separate exchange, an avenue for new-gen start-up companies with eased out framework than the regular exchange. SEBI, through its press release capturing the Minutes of their Board Meeting, has notified several key changes.

Eligibility: Primarily, for a company to be eligible to be listed on IGP, the requirement of company’s 25% pre issue shareholding to be held for at least two-year period by the eligible investor has now been reduced to one year only.

IGP Investors: “Accredited Investors” have now been re-named as “IGP Investors”. Also, the pre-issue shareholding of such investors for meeting eligibility has been increased from 10% to 25%.

Discretions: The start-ups are now allowed to allocate up to 60% of the issue size on discretionary basis prior to issue opening, to eligible investors with a lock in of 30 days on such shares. Alike the Main Board IPO, Issuer companies, which have issued Superior Voting Rights equity shares to promoters / founders shall be allowed to do listing under IGP framework.

The open offer trigger has been alleviated from existing 25% to 49% in event of a takeover of a company listed on IGP. Rules regarding migration of start-ups listed on IGP to the main board of a stock have also been relaxed. Start-ups that do not meet the conditions of profitability, net assets and net-worth for migration to the main board can now do so if 50 % of the capital is being held by qualified institutional buyers as against the earlier requirement of 75%.

Delisting: As far as delisting of start-ups under the IGP framework are concerned, they will now be considered successful if the post offer acquirer/promoter shareholding, taken together with the shares tendered and accepted, reaches 75% of the total issued shares of that class; an at least 50% shares of the public shareholders are tendered and accepted.  Also, for delisting, the Reverse Book Building mechanism shall not be applicable, and for computation of offer price the floor price will be determined in terms of Takeover Regulations, 2011, along with delisting premium as justified by the acquirer/promote.

 AIFs: SEBI has proposed to change the alternative investment funds regulations by providing the definition of “start-up” as specified by government to enable investment by angel funds. Also, the list of restricted activities or sectors from the definition of “venture capital undertaking” has been removed to provide more flexibility to VC funds.

These changes will make it seamless for start-ups to go public on the IGP and simultaneously provides them an easy exit route. The thresholds for investments and the bar for only accredited investors prevented start-ups from availing this avenue and with these changes it would be easier for them to raise funds. NSE’s IGP is a public market platform for new economy companies both for raising funds as well as exploring exits.

Authored by
Neeraj Dubey, Partner, Corporate Law and Rajveer Agri, Associate