Startups in India have a hard time getting money. Banks in India don’t want to lend money to businesses in the technology field, and very few businesses get money from venture capital. So, to make it easier for startups to get money, SEBI recently came up with the idea of a stock market for startups and small businesses. Here, we look at the features that SEBI has proposed for the stock market in India to help start-ups and small businesses get more money from the stock market. Please keep in mind that the startup and small and medium-sized enterprise (SME) stock market is currently in the conceptual stage and will not be operational until later this year.
A report from StartupIndia says there were more than 50,000 start-ups in India in 2018. There were about 9,300 of them that were technology-based in 2018. In 2019, there were 1,300 new tech start-ups added to the ecosystem, which means that two to three tech start-ups are launched every day.
In the last 12-18 months, these new-age start-ups caused a lot of problems for businesses and households because of the pandemic. PB Fintech, Zomato, and Nykaa have been on the stock market for a while now, and they have been getting mixed reviews about how well they did.
Getting money to start a business
New businesses need to have enough money to start and run. In the manufacturing or trading sectors, small businesses can get loans from banks for things like building, machinery, and inventory. These loans can be long-term or short-term. As an example, banks don’t pay for things like rent or marketing. Companies in the technology or service industries often can’t get money from banks, so they have to start their businesses.
Startup IPO in India
Startups and small businesses are very important because they can help people find jobs and make money, and they can also help people think outside the box and be more creative. So, taking into account the current problems and the important role that Startups and small businesses play in building a country, the right conditions must be set up for these businesses to thrive.
To lower the risk of investing in new businesses
There is a lot of risk for a start-up or small business to fail right now, compared to businesses that have already grown bigger. Early investors in a startup are also limited by the few ways they can get out of the business. When the promoter buys back the company or looks for a new buyer, the investor may not be very happy with the terms of their exit.
People who invest in start-ups and small businesses have to take on the risk that their money will be held for a long time, which makes the cost of capital go up even more. The limited marketability of unlisted securities, as well as the lack of a marketplace where all interested investors could look for investments and exit options, is the reason for this.
For this reason, it is important to put the shares of start-ups and small businesses on a market where they can be sold. People who want to invest in a startup or small business would see them more if they were put on a stock exchange. People who want to invest in small businesses and start-ups are more likely to find them when the market is set up. This also makes it easier for them to get money.
Start-ups and small businesses can buy stocks on the stock exchange
Startups in India have a hard time getting money. Banks in India don’t want to lend money to businesses in the technology field, and very few businesses get money from venture capital. So, to make it easier for startups to get money, SEBI recently came up with the idea of a stock market for startups and small businesses.
Here, we look at the features that SEBI has proposed for the stock market in India to help start-ups and small businesses get more money from the stock market. Because the stock market for Startups and SMEs haven’t yet been put into place, it’s important to keep this in mind.
Getting money to start a business
New businesses need to have enough money to start and run. In the manufacturing or trading sectors, small businesses can get loans from banks for things like building, machinery, and inventory. These loans can be long-term or short-term. As an example, banks don’t pay for things like rent or marketing. Companies in the technology or service industries often can’t get money from banks, so they have to start their businesses.
People in India can put money into start-ups
Startups and small businesses are very important because they can help people find jobs and make money, and they can also help people think outside the box and be more creative. So, taking into account the current problems and the important role that Startups and small businesses play in building a country, the right conditions must be set up for these businesses to thrive.
To lower the risk of investing in new businesses
There is a lot of risk for a start-up or small business to fail right now, compared to businesses that have already grown bigger. Early investors in a startup are also limited by the few ways they can get out of the business. When the promoter buys back the company or looks for a new buyer, the investor may not be very happy with the terms of their exit. People who invest in start-ups and small businesses have to take on the risk that their money will be held for a long time, which makes the cost of capital go up even more. To make sense of this, think about how hard it is for unlisted securities to be sold and how there isn’t a marketplace where all interested investors could look for possible investments and exit options.
For this reason, it is important to put the shares of start-ups and small businesses on a market where they can be sold. People who want to invest in a startup or small business would see them more if they were put on a stock exchange. People who want to invest in small businesses and start-ups are more likely to find them when the market is set up. This also makes it easier for them to get money.
How to start a private limited company and get money for it
Only Small businesses and start-ups could be able to get money from the SME Exchange, which is a stock market for these types of businesses. Visit IndiaFilings.com to learn more about starting a Private Limited Company and getting money from other people to start it.
Startup IPO and Capital Market
SEBI (Securities and Exchange Board of India) wants to make it easier for start-ups and small businesses to get money. They want to set up a stock market for Startups and SMEs. It will be easier to list on this stock exchange because startups and small businesses won’t have to do an IPO. The SME Exchange will not be open to everyone. The SME Exchange will only be open to institutional investors or people who know what they’re doing, which will help reduce the risk for investors.
The characteristics of the proposed SME Market are the following:
- The startup or small business must be a company that is owned and run by its people.
- In this case, startups and small businesses will be put on the market without making an open offer or getting money from the public.
- To be able to get an IPO without going public, a company must meet the rules for this segment.
- It is not allowed for a company to make a public offer at the time of listing or while it is on this platform.
- Any more money raised will have to come from preferred stock and rights issues. There can’t be a way to give up your rights in a case like this to keep people from voting.
- The focus will be on giving investors a chance to see the companies before they invest and making it easy for them to get in and get out.
- Because the market is only open to people who know what they’re doing, exit procedures can be tailored to fit the needs of the investors who want to leave, with more emphasis on the approval of non-promoter shareholders rather than the promoter having to give all other shareholders an exit. This means that SEBI’s regulations on delisting would not apply.
Having to be on the SME Exchange to be listed
Startups and small businesses that don’t want to go public with an IPO can apply to be on the SME Exchange, even if they don’t have a lot of money. Some of the things that might be required for a startup or small business to be able to list on the SME Exchange are:
- Venture capital funds, alternative investment funds, merchant banks, and qualified institutional buyers are all allowed to invest in a company’s equity. Other types of investors and lenders can also be allowed to invest in the company’s equity.
- Also, getting a project or working capital financing from scheduled banks in the last three years may count as one of the ways to get in.
- The company, its group companies, and its subsidiaries can’t be on CIBIL’s “wilful defaulters” list. The company, its group companies, and its subsidiaries can’t have been referred to the BIFR in the last five years.
- There might be rules about who can use this platform, like that they can’t have been around for more than 10 years or make more than 100 crores or have a paid-up capital of more than 25 crores.
- Disclose On a half-yearly basis, who owns what in the company.
- On a half-yearly basis, show a short version of the financial results.
- Comply with the rules for Corporate Governance set out for the SME platform.
- Disclose Corporate Actions where the company gets something in return (like dividend, split, buyback, bonus, rights).
- Share information about how to raise more money.
- Share any changes in the Management Team.
- A market lot of 1,000,000 should be set so that only people who know what they’re doing trade in this platform.
- There should be a three-year lock-in period for the promoters’ shareholding in the company. They should be locked in for 20% of their shares at the time of the company’s listing. This is like the main market and an existing SME exchange.
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