The Securities and Exchange Board of India (Sebi) has proposed a new set of rules to enable India’s growing number of start-ups to raise capital more easily on an alternative platform in the local stock exchanges. The proposed rules, which form part of a discussion paper released by the regulator on Monday, signal a shift in policy perception relating to new-age firms, which, unlike the traditional brick-and-mortar firms, have innovative business models but burn cash in the initial phase of growth and need experienced investors to buy into their stories. Sebi as well as the government — which announced Rs 1,000 crore for start-ups in this year’s budget — appear to have recognised their growth potential and ability to create new jobs.
Sebi now wants to smoothe the path for capital raising for new-age companies with differential rules on disclosure, listing and other provisions in line with standards prevailing in other global jurisdictions. The aim is to create a new platform for these firms to raise funds from mainly institutional and high net worth investors. Many start-ups prefer to either raise funding overseas or list in exchanges abroad. The company that is the poster boy for e-commerce in India, Flipkart, is a classic example of a start-up flourishing because of funding from global investors and a poor testimony to an eco-system within the country that is unable to back young entrepreneurs with bright ideas.
