Start-up IPOs: Sebi’s continued efforts to empower investors
On National Startup Day, here’s a look at the various steps taken by capital markets regulator Sebi to enhance disclosure and listing norms for start-ups
- Jan 16, 2024,
- Updated Jan 16, 2024 11:54 AM IST
Start-ups or digital or new-age companies have been recent entrants in the Indian stock market arena with the first set of such companies—Zomato, Nykaa, PolicyBazaar, Paytm—making their debut only in 2021.
But ever since they marked their presence in the public markets, there has been much chatter around the segment especially given the way the stock prices have swung on the bourses.
Stock price aside, there was an urgent need to revisit the regulatory framework for such entities as the dynamics governing such new-age ventures were quite different from those coming from the traditional or old-economy segments.
To start with, there was hardly any profits to show and even the other key metrics based on which such firms showcased their growth were quite different and new for the investor and analyst community.
These aspects did not go unnoticed as capital markets regulator Securities and Exchange Board of India (SEBI) was quick to jump in the fray and amend the rules for the overall primary market—but with a clear focus on start-ups—so as to empower the average investor on the street to make more informed decisions.
Over the last couple of years, the watchdog has been regularly tightening the disclosure and compliance norms for IPOs, especially those by start-ups.
It started in December 2021—just months after the first set of start-ups made their debut on the stock exchanges—when Sebi announced a slew of measures to address some of the issues that were brought to the fore as a number of new-age high growth companies launched their initial public offers (IPOs).
To start with, the regulator capped the quantum of IPO proceeds that a company could use for inorganic growth while further segregating the limit to be utilised if an acquisition target has already been identified.
It further capped the quantum of shares that existing shareholders could sell as part of the IPO if the company is a loss-making one – clearly aimed at the private equity and venture capital players that were offloading their stake as part of the IPOs of all online and digital majors.
The regulator also tightened the lock-in norms for anchor investors who were earlier allowed to sell their entire holding after 30 days of allotment. The amendments stated that such investors could sell only half of their shares after 30 days and the balance after 90 days of allotment.
Thereafter in September 2022, the regulator again tightened the disclosure norms for companies especially those relating to key performance indicators (KPIs) based on past transactions and past fund raising.
Some of the disclosures mandated by the regulator included price of shares sold or acquired during 18 months prior to the IPO or last five primary or secondary transactions – if in case there are no transactions in the last 18 months.
The decisions were, once again, primarily aimed at start-ups that were typically loss-making and it was difficult to ascertain the financial health of the company based on traditional metrics.
While announcing the new norms, Sebi chairperson Madhabi Puri Buch had said that the aim was to remove any kind of information asymmetry so that both, institutional and retail investors, have access to the same set of information.
This assumes significance as the next few months could also see many start-ups tapping the stock markets to capitalise on the current buoyant investor sentiment to give their existing PE/VC stakeholders an attractive exit option through an IPO.
Also Read | YES Bank shares jump 6% to hit new 52-wk high, mcap tops Rs 75,000 cr: Key levels to watch
Start-ups or digital or new-age companies have been recent entrants in the Indian stock market arena with the first set of such companies—Zomato, Nykaa, PolicyBazaar, Paytm—making their debut only in 2021.
But ever since they marked their presence in the public markets, there has been much chatter around the segment especially given the way the stock prices have swung on the bourses.
Stock price aside, there was an urgent need to revisit the regulatory framework for such entities as the dynamics governing such new-age ventures were quite different from those coming from the traditional or old-economy segments.
To start with, there was hardly any profits to show and even the other key metrics based on which such firms showcased their growth were quite different and new for the investor and analyst community.
These aspects did not go unnoticed as capital markets regulator Securities and Exchange Board of India (SEBI) was quick to jump in the fray and amend the rules for the overall primary market—but with a clear focus on start-ups—so as to empower the average investor on the street to make more informed decisions.
Over the last couple of years, the watchdog has been regularly tightening the disclosure and compliance norms for IPOs, especially those by start-ups.
It started in December 2021—just months after the first set of start-ups made their debut on the stock exchanges—when Sebi announced a slew of measures to address some of the issues that were brought to the fore as a number of new-age high growth companies launched their initial public offers (IPOs).
To start with, the regulator capped the quantum of IPO proceeds that a company could use for inorganic growth while further segregating the limit to be utilised if an acquisition target has already been identified.
It further capped the quantum of shares that existing shareholders could sell as part of the IPO if the company is a loss-making one – clearly aimed at the private equity and venture capital players that were offloading their stake as part of the IPOs of all online and digital majors.
The regulator also tightened the lock-in norms for anchor investors who were earlier allowed to sell their entire holding after 30 days of allotment. The amendments stated that such investors could sell only half of their shares after 30 days and the balance after 90 days of allotment.
Thereafter in September 2022, the regulator again tightened the disclosure norms for companies especially those relating to key performance indicators (KPIs) based on past transactions and past fund raising.
Some of the disclosures mandated by the regulator included price of shares sold or acquired during 18 months prior to the IPO or last five primary or secondary transactions – if in case there are no transactions in the last 18 months.
The decisions were, once again, primarily aimed at start-ups that were typically loss-making and it was difficult to ascertain the financial health of the company based on traditional metrics.
While announcing the new norms, Sebi chairperson Madhabi Puri Buch had said that the aim was to remove any kind of information asymmetry so that both, institutional and retail investors, have access to the same set of information.
This assumes significance as the next few months could also see many start-ups tapping the stock markets to capitalise on the current buoyant investor sentiment to give their existing PE/VC stakeholders an attractive exit option through an IPO.
Also Read | YES Bank shares jump 6% to hit new 52-wk high, mcap tops Rs 75,000 cr: Key levels to watch