This Move by SEBI Could Boost Startup Listings!

‘Snapchat’ has now found a new follower in SEBI. What’s alluring is that the ‘following’ brings good news for startups. Scroll down!

Although Evan Spiegel’s derogatory remarks outraged a lot of people in India, market regulator Securities and Exchange Board of India (SEBI) is contemplating to implement a ‘Snapchat model’ for facilitating listing of Indian startups.

A SEBI-appointed committee has proposed to allow companies to sell shares with differential voting rights. This meeting was held last week to boost startup listings in the market, that didn’t happen till now. As per the SEBI panel, this allowing of startups to sell shares without giving up control could be a game changer. This move would allow more freedom to startups.

The proposal has got mixed reactions from experts.  “It is a good proposal since it allows a startup to separate its ownership and economic interests. There are also similar provisions in the Companies Act known as differential voting rights. Such provisions will allow the boards of startups to take decisions that are in the best interests of the company without having to fear a corporate coup or backlash from minority shareholders. However, having a strong corporate governance structure is a prerequisite for allowing any such provision,” Sudhir Bassi, partner, Khaitan & Co, told Business Standard.

The SEBI panel also discussed allowing a single institutional investor to buy more than 30 percent stake in a startup during or after listing. As per the current regulations, no single institution can own more than 10 percent in a single company.

During Snapchat’s IPO (Initial Public Offering) last year, the multimedia messaging app offered shares without any voting rights. This decision by Snapchat caught the market’s eye, since it allowed startup founders to explore the market without giving up freedom on their decision-making.

Had this move taken place much before the Walmart-Flipkart acquisitions, the startup founders could have breathed a lot easy. As compared to India, the laws in the US are quite relaxing. Fingers crossed, if this move by SEBI gets a green signal, it would be a ‘red letter day’ in the history of startups. To an entrepreneur, his startup is his dream project, and he has every right to make his own decisions.

Do you think this move by SEBI would help the startup ecosystem thrive? We eagerly await your feedback.