Indian Start-ups and Investors To Benefit From New IPO Rules

India is easing IPO rules for start-ups in a bid to lure more domestic investors into the booming e-commerce community.

In a board meeting today, the Securities and Exchange Board of India (SEBI) announced that it would set up an alternative trading platform with revised requirements for investment in start-ups, accoding to Reuters. The new rules would place less demands on investors and make it more attractive for Indian start-ups to list at home.

Foreign Capital Fuelling E-commerce

There are more than 3,100 start-ups in the country…The space is very vibrant.

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The e-commerce industry in India is nothing new and shows no signs of slowing. Recent data by Bloomberg indicates that start-up activity is on the rise in this space, with both the number of deals and the amounts invested significantly rising since Q2 2014. Indeed, UBS AG predicts the e-commerce market to grow tenfold to $50 billion by 2020.

As U.K. Sinha, Chairman of SEBI, outlined, “There are more than 3,100 start-ups in the country…The space is very vibrant.”

Despite many large Indian e-commerce firms having acquired tech-savvy start-ups, most of the investment in local start-ups continues to come from offshore. Indeed, Forex Magnates recently reported that Faircent, a P2P lender in the India market, secured its latest round of funding from abroad, raising $250,000 from Singapore-based M&S Partners.

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Attractive New Framework

The new rules seek to make listing in India a more attractive fund-raising and investment option.

The new rules seek to make listing in India a more attractive fund-raising and investment option. Sinha said that “Start-ups and their investors have listed their pain points to us and we have tried to resolve them”.

To do so, SENI’s board outlined new rules linked to profitability, use of funds and valuation methodology. The lock-in period for investors in start-ups is now six months, down from three years for regular IPOs.

The minimum investment in start-ups will be set at 1 million rupees ($15,700), with institutional investors expected to hold at least 25% of the pre-issue capital of technology start-ups and 50% for some other categories of start-ups, according to Bloomberg.

“We are rethinking the whole framework to make it investor oriented,” said Srinivasan, a member of a SEBI’s panel on start-ups.

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