BANGALORE: Market regulator Securities and Exchange Board of India's decision to allow small and medium enterprises to list their shares without an initial public offer has boosted sentiment across the country's startup ecosystem.
The new guidelines, announced by Sebi on Tuesday, allow startups to list on the institutional trading platform. It also exempts them from having to offer 25% of shareholding to the public through an offer document to get listed. "It is a positive development as this has been a long neglected area," said Neha Mehta, vice-president of the Indian Private Equity and Venture Capital Association.
Sebi has amended its Alternative Investment Funds Regulations laid out in 2012 to include angel funds as a sub-category of venture capital funds.
Industry seniors have welcomed the move as it is expected to boost angel investment activity in the country. "This is an extremely welcome move, considering some of the negative announcements made recently like tax on startup investments," said Krishnan Ganesh, founder of online tutoring company TutorVista, who is now an active angel investor.
The 2012 Union Budget had stated that an investment in any private company could be classified as "income" and subject to tax if the company was unable to justify the valuation to a tax officer.
Early-stage investors put in nearly Rs 4,000 crore into 171 ventures last year, according to consulting firm Ernst & Young.
Concerns, however, remain over the fine print in the regulations that stipulate a minimum investment of Rs 25 lakh in a company by an individual investor and Rs 50 lakh by a fund. "Many early-stage companies only need investments of a few lakhs," said Ganesh who has backed early-stage ventures, such as online jewellery portal Bluestone and neighbourhood services venture Delyver.
Ravi Kiran, cofounder of startup accelerator VentureNursery, is of the view that instead of the regulator laying down stipulations of minimum investment and a lock-in period, "the market should be allowed to decide this". About 40 startup accelerators currently operate in the country.
However, what is raising hackles within the industry is the move to disallow family members from investing in startups. "Family being excluded is unnecessary, friends and family are typically the first set of investors in a startup company," said Sanjay Swamy, cofounder of startup incubator AngelPrime.
The guidelines also make it necessary for individual angels to have early-stage investment experience or experience as a serial entrepreneur or be a senior manager with at least 10 years experience. Advisory firm Zinnov Consulting estimates that nearly 600 startups come up in India every year.
"Finally, we have been recognised as an industry, a few clarifications will make it even better," said Ganesh.