Here’s all that Indian startups looking to list without an IPO need to know

Here’s all that Indian startups looking to list without an IPO need to know


  • 10 Oct 2013
Here’s all that Indian startups looking to list without an IPO need to know

Indian securities market regulator Securities & Exchange Board of India (SEBI) has just made it easier for startups to list on a stock exchange possibly to raise funds from institutional investors and also provide an exit route to their angel or venture capital investors. This can now be done without going through the elaborate, sometimes 

time-taking and costly process of an initial public offering (IPO).

This comes four months after SEBI issued certain guidelines for such a process.


SEBI has notified the Securities and Exchange Board of India (Listing of Specified Securities on Institutional Trading Platform) Regulations, 2013 early this week. We cull out the things you need to know:

Eligibility criteria and process

Firms should not be over 10 years old with a paid-up capital of less than Rs 25 crore and revenues under Rs 100 crore in any single financial year. It should also have at least one full year’s audited financial statements, for the immediately preceding financial year at the time of making the listing application.


It should have at least one alternative investment fund, venture capital fund or angel investor (who is a member of an angel network) or an institutional investor who has invested at least Rs 50 lakh in the firm. Alternatively it should have raised loan from a scheduled bank for its project financing or working capital requirements and a period of three years has elapsed from the date of such financing and the funds have been fully used, or it has been funded by an international multilateral agency or domestic agency or public financial institution.

This does look somewhat restrictive for say a startup which has not raised external capital and has manage to grow to a certain scale without any bank funding. So firms who are looking to list to give liquidity to ESOP holders through share sale to other institutional investors in the future may find it difficult to use this window.

Eligible firms may apply to a recognised stock exchange for listing of its securities on the institutional trading platform, enclosing therewith an information document containing disclosures. The information document shall be made public on the website of the stock exchange for at least three weeks from the date of application.


The stock exchange may grant in-principle approval to the company and this shall be deemed to have been waived by the market regulator SEBI for the limited purpose of listing on institutional trading platform. The exchange may then list the securities of the company on the institutional trading platform.

Raising fund

The market regulator has clearly said listing on the institutional trading platform shall not be accompanied by any issue of securities to the public in any manner and the firm shall not make an IPO while its specified securities are listed on the special platform.


It may raise capital through private placement or rights issue without an option for renunciation of rights. These private placements shall be subject to certain conditions.

Besides there are standard conditions such as approval from the stock exchange and that of its own shareholders through a special resolution and sale of such securities within two months of obtaining such an approval.

The firm shall disclose to its shareholders the purpose for private placement, identity of allottee (and whether he/she belongs to the promoter group or related to the promoter), nature of securities being issued and the price at which the security is being issued.


The pricing of the securities in the private placement shall be equal to or more than the book value of the equity shares as per the last audited financial statement not older than six months or value of shares as determined in an independent auditor’s or registered merchant banker's report, whichever is higher.

Such listed firms looking at a rights issue, i.e. issuing fresh shares to existing shareholders, should provide for an option for renunciation of rights besides informing all shareholders of the issue and obtaining a green signal from the stock exchange.

Promoter shareholding and trading

Promoters or founders of the firm need to hold at least 20 per cent of the post listing share capital, which shall in turn be locked in for a period of three years from date of listing.

The securities of the firm shall be in dematerialised form upon listing on institutional trading platform and the minimum trading lot on institutional trading platform shall be Rs 10 lakh.


The firms listed through such a route can exit the platform if the exchange approves it and its shareholders also allow such a move. The shareholder should approve such an exit by passing a special resolution through postal ballot where 90 per cent of total votes and the majority of non-promoter votes have been cast in favour of such proposal.

This can be triggered in the event of the firm has been listed for 10 years or it has paid up capital of more than Rs 25 crore or market cap of over Rs 500 crore or revenue exceeding Rs 300 crore in the last year. In such a case, the stock exchange may grant 18 months to such company to delist.

A company will also be delisted if it has failed to file its periodic filings with the recognised stock exchange for more than a year or it has failed to comply with corporate governance norm(s) for more than a year.

Further, promoters and directors of a company delisted under such conditions will not be allowed to list another firm in which they are a promoter or a director under the institutional trading platform for a period of five years from the date of such delisting. However, independent directors of such firm formed to delist will not be bound by this norm disallowing them to list another firm in which they are a promoter.


The disclosure norms are pretty standard, of at all less onerous compared to the conventional IPO. Besides giving description of business, the company should mention its products or services and that of its subsidiaries and number of employees barring those bits which would affect adversely the company's competitive position.

The firm also needs to disclose financial statements such as audited balance sheet, profit & loss account, cash flow statement, with attendant annexure and notes to accounts for the previous year.

It should also provide description of authorised and subscribed share capital, property and information about transactions to acquire such properties, information of securities ownership as well as details of promoters (if it’s another firm, details of those holding over 15 per cent voting rights of such firms), directors and executive officers.

The company also needs to disclose risk factors and pending legal proceedings against the firm.

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(Edited by Joby Puthuparampil Johnson)

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