SEBI’s plan to launch Innovators Growth Platform to help startups

Innovators Growth Platform has been proposed to infuse fresh investment and create a growth spurt in the startup ecosystem. SEBI proposes changes that can revolutionize the entrepreneurship environment in India.

Publish Date: February 20, 2018

By: Sandhya Kannan, Head – Content

Startups have been a focal discussion point in the Indian economy since the last decade or so. As many as 16000+ startups have been registered during the last decade. SEBI or the Securities and Exchange Board of India has a framework in place since 2009. In 2015, the ICDR (Issue of capital and disclosure requirements) platform was reframed as the ITP (Institutional Trading Platform), but radical changes were made to the ITP in the last few months. ITP is an enabler for new-age startups. This platform is proposed to be renamed as IGP or ‘Innovators Growth Platform’.

The past decade has seen the rise of Unicorns in the startup space, but the regulatory framework has not been conducive to allow an inflow of fresh funding to many an innovator. December 2018 saw SEBI take progressive steps towards easing the eligibility criteria to fast-track growth in this sector. Relaxations have been proposed in the form of more discretion in investor share allocation and lower minimum application size.

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Revised proposals for the IGP

The proposed relaxations will provide the much needed motivation for the struggling startup culture. The purpose of these new propositions is to ensure smart funding and skill building to scale operations and revenue and thus revitalize the economy. The much needed revamp has been sought after the ITP failed to generate much interest in the investor space.

• The startups listed on the IGP are proposed to get an option to trade on the main board after completing one year on the board. At present, the regulations demand 3 years of the same before migrating to the main board from the SME platform.
• SEBI has shown the intention to withdraw caps on the post-issue shareholding from the previous restrictive figure of 25%.
• The minimum application size is proposed to be reduced to Rs 2,00,000 and in its multiples from the prohibitive Rs 10,00,000.
• The criterion to allot minimum 75% to institutional investors has come under scrutiny. It has been mentioned that allocation should be allowed to be made to any category of investors on a proportionate basis.
• The restrictive rule that caps share allotment to a single institutional investor at 10% has been proposed to be scrapped.
• The new proposal aims at having a minimum of 50 number of allottees.
• ESOP’s will be exempt from the 6 month lock-in that is now mandatory to the entire pre-issue capital.

How will these proposals revitalize the startup space?

SEBI had invited feedback from a wide diaspora of market participants to firm up the recommended changes to bring fresh investments and equity in the field. An elite group was constituted to evaluate and suggest a revamp to boost listings on the platform. The industry was represented by the iSPIRT (Indian Software Product Industry Round Table), the Indian Private Equity and Venture Capital Association (IVCA), The Indus Entrepreneurs (TIE), Stock Exchanges, merchants, and law firms. The wide representation from various organizations is expected to bring decisive changes to the draconian rules and bring explosive growth to the startup economy.

The investor brings to the table not just funding but also a plethora of rich entrepreneurial experience, a bank of scaling enterprises, and operational excellence that is best in industry. The initial funds can kick start a business, but deep knowledge can help stabilize and scale the business to create traction.

The recent revision in the definition of a startup by the government has been welcomed by this sector. The scope has been widened by the government with a series of announcements that herald a change in the ecosystem of innovative and disruptive entrepreneurship. The much maligned angel tax has been under scrutiny for some time and has resulted in many an investor choosing to stay away.

The growth spurt in the startup space will lead to job creation, entrepreneur innovations, and create a buzz in the youth. The Indian demography is tilted heavily in favour of the young, and new reforms will take the Indian economy to new levels of growth.

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