Promoters of startups seem to be in a bind when it comes to having their companies listed on the stock exchanges. The difficulty is many of them end up diluting their own equity holdings when they raise funds and can’t fulfil the 20% minimum promoter holding requirement for listing. These companies have now approached market regulator SEBI with a request that the norm be relaxed in their cases, as per an Economic Times report.
The startups that have approached SEBI are reported to be Ola, Lenskart and PolicyBazaar. While Ola is the well -known ride-share company, Lenskart deals in eyewear and PolicyBazaar is an online insurance policy aggregator.
These companies want SEBI to either revise the norms for all startups, or at least revise them to consider on a case-by-case basis. Incidentally. Most of these companies are unicorns, valued at over $1 billion or close to it. There may be meetings held in the coming weeks with the SEBI officials to press their case.
These startups are pointing out that in some of the large markets like the US and China, this 20% clause does not exist. None of the parties concerned or SEBI have confirmed the development directly. IndiaTech, a lobbying firm that represents a number of startups is said to be working on building support for these companies.
A look at startups which have grown quite an extent from their founding days would reveal that the average holding left with the promoters ranges between 5% and 15%. This is because they keep diluting their stake through each step in the fund-raising process.
It also appears from the ET report that SEBI had suggested that the promoters ask some of the investors in their companies to make up for the shortfall in qualifying for the 20% cut-off. This has also not found favour with the startups since they say the investors won’t be willing to wait for three years, as the listing norms dictate a 3-year lock-in of the promoters’ quota.