Will SEBI’s new norms work for Indian startups? #ListInIndia

SEBI has relaxed listing and fund-raising norms for start-ups. Most believe that India with its vibrant ecosystem of 3,100 functional startups would act as a fertile ground to such measures. India’s e-commerce giants have welcomed the move.

A Snapdeal spokesperson told BI India, “For us at Snapdeal, we are particularly pleased with this move considering that easing of listings norms will benefit India focused companies like ours in the long run.”

Housing.com CFO Azeem Zainulbhai has also welcomed the move saying, “This is a reflection that the sheer pace with which start-ups have grown over the past year has attracted attention from key decision makers in the country. By bringing these reforms into action, it will now be easier for innovative business ideas to flourish and enable Indian equity companies to invest in India itself.”

Other startups are also not far behind.

Abhiraj Bhal, Co – Founder, Urbanclap.com said, "We are currently in the midst of a consumer internet revolution in India, and the next decade will see a very large wealth creation cycle."

While most companies are going gaga about the new regulations, I embarked on a journey to probe how feasible the new SEBI norms are in the current Indian market.

“It will definitely open up more avenues for startups to access capital. However, while a new platform is always a good idea, retail investors should realize that the risk profile is very different for startups”, Debobroto Das, Associate at private equity firm New Silk Route says.

Early stage investments have always been more volatile, and mature private equity firms generally have a mandate to invest in companies with proven track records as opposed to venture capitalists who can afford to bet and win big.

So is there a chance that the ‘value-for-money’ Indian equity investor would want to invest in e-commerce sites that are bleeding cash but are valued very high? After all, some of the more established startups Alibaba, Pandora and Twitter are slipping from their listing points in India.

“It makes sense if you have a diversified portfolio with mature investments, and decide to take a calculated risk. It’s definitely foolish to invest half of your life savings in an internet firm in the hope of tripling your money”, Das says.

Most experts believe it all depends on how interested institutional investors are in the new platform, as a major part of the liquid capital would still come from them. It’s a win-win for institutional investors as this would give them more and easier liquidity as opposed to being locked in till extended periods of time.

As for small scale retail investors, it will take some time to educate them about the risks and rewards of using a platform designed predominantly for pre-established companies. But to sum it up in a line (borrowing from a quote from Spiderman): With greater risks come greater currencies.

Startups that would be able to successfully list themselves will definitely enjoy higher valuations as Indian valuations are typically higher than their European, American and even South East Asian counterparts.

As of now, while the government’s aggressively pushing companies to Make in India; let’s hope some startups agree to List in India as well.

(Image credit: Indiatimes)