The Securities and Exchange Board (Sebi) has done well to recognise the need to ease IPO norms for start-ups, like reducing the lock-in period to three months for promoters as against three years for IPOs, as it will be a booster for them to raise equity within the country instead of raising and listing their companies in global stock exchanges.
A significant number of start-up companies have been moving to Singapore so that it would be easier for them to list because of less stringent disclosure requirements. The other significant decisions were to cut the time between listing and closing of normal IPOs to six days from 12 days with the objective of bringing it down further, and helping retail investors get a fair deal in the government’s forthcoming disinvestment programme. The disinvestment department of the government was more inclined towards an arrangement that seemingly favoured the big investors and big market operators.
Interestingly, Sebi has kept the small retail investor out of the start-up IPOs by keeping the trading lot size at Rs 10 lakh so that only high net worth individuals and institutions are eligible to subscribe to them because of the huge risks involved. It is understood that a significant number, if not most of the 3,000 estimated start-ups, make losses, a fact little known as only the success stories are hyped in the media.
Rating agencies like Crisil have welcomed this, saying that since start-ups often try out new business models or products they face a high failure rate, whilst the limited ones that are successful provide outstanding returns.
