IPO-bound technology startup founders with a personal net worth of up to Rs 1000 crore can now get superior voting rights or SVRs, India's market regulator Securities Exchange Board of India (Sebi) said on Tuesday. The move is expected to provide such tech startup founders an added incentive to list in India.
Earlier, the cap was pegged at Rs 500 crore on promoter groups, which included multiple persons coming together to set up a company. This cap was limiting for startup founders who had sold shares worth Rs 500 crore and above in their companies as they were not eligible for SVRs when listing on domestic bourses.
SEBI has also halved the minimum gap between issuing SVRs and filing the red herring prospectus--from six months to three months.
These changes augur well for startups looking to list in India, according to Siddarth Pai--cofounder of 3one4 Capital. He explained that SEBI introduced SVRs in 2019 as an incentive for tech founders looking to list in India. "An SVR or a differential voting right (DVR) allows a company to issue a separate class of shares with higher voting rights than what a normal share has -- usually, one share equals one vote, but for those holding DVRs, one share may equal 3 votes," said Pai, who is also co-chair of Regulatory Affairs Committee at the Indian Private Equty and Venture Capital Association.
Tech founders with marginal shareholding but holding executive positions would be able to manage the affairs of their companies post listing.
Without DVRs, startup founders had greater incentive to list abroad. Most global tech companies such as Google, Facebook and Apple have these structures. In fact, 22 startups wrote to the Prime Minister in August asking for direct overseas listing norms to be eased as it would allow them to tap larger pools of capital. The startups, however, did not cite DVRs as a reason in the letter to the PM.
“The differential voting rights regime is yet to fully be embraced by the startup community, despite the blockbusters IPOs seen on the street. One the reasons is that a company cannot issue DVRs if the promoter group’s net worth is above Rs 500 crore (excluding the worth of the shares held in the company proposing to issue DVRs)," Pai said.
Founders who have a personal net worth of Rs 1000 crore and above, though, would still not get a DVR. “The choice that founders of startups face would be to either opt for early liquidity prior to liquidity and run the risk of not getting DVRs or reduce the early liquidity for getting DVRs in the future,” Pai said.
This is a welcome move from SEBI for the entire startup community, Naveen Tewari, founder of inMobi, told VCCircle. "By increasing the cap on a promoter's net worth for Differential Voting Rights, we enable Indian entrepreneurs to realize their original intent for the companies they founded and create the necessary conditions to encourage homegrown innovation in India," he said.
"For private tech startup companies that need a lot of capital, the challenge can be that promoters are diluted soon and they may end up loosing control, and there are examples of it in the past 12-24 months. With upcoming tech IPOs, this could also happen in public markets. These proposed changes are in the right direction and makes India even more conducive for IPOs, especially for tech companies versus international markets," Amit Nawka, partner - deals and startups leader, PwC in India said.
Over the past year, startups such as Zomato, CarTrade and Nazaara Technologies have gone public while many such as PayTM, Ixigo and Mobikwik have filed for a listing.
However, heads of many startups Byju’s, Swiggy, Cred, Bharat Pe, and Urban Ladder wrote to the PM asking to make overseas listing easier on the grounds that it would increase the profile of the startup founders and allow them a greater pool of global capital.