SEBI’s proposed alternative capital raising platform: is your start-up eligible?
SEBI issued a discussion paper on a proposed alternative capital raising platform specially catering to start-ups/“new-age” companies. This is definitely a positive step by SEBI as it potentially offers a regulatory regime where start-ups can realize better valuations like in jurisdictions such as USA or Singapore,which have a head start in terms of a more conducive regulatory framework for start-ups to raise risk capital.
This write-up summarizes the entire thought process under two distinct heads:
- Suggestions/recommendations for the possible a) Eligibility Criteria b) The Platform c) The Process d) Objects of raising capital e) Lock in of shares &f) Issue Price for an Alternative Capital Raising Platform; and
- Review of other regulatory requirements.
While SEBI’s discussion paper has definitely caught the fancy of several start-ups, one of the queries topmost on the minds of entrepreneurs is whether their start-ups can raise capital through this proposed “alternative platform”. If you happen to be one of them, you may want to take this brief test to find out the answer.
- If you are NOT a software product development company or e-commerce company or NOT considered as a “new-age company”*having an “innovative business model”* that creates “new business opportunities” * or which serves “important efficiency enhancements in business activities”* (* The paper does not define these terms.)
- Is your company planning to raise equity capital from retail Investors?
- Is your company planning to raise less than Rs. 10 Lakhs from a single investor?
- Is your company planning to raise funds from less than 500 Investors?
- Is your company’s fund-raising target less than Rs. 50 Crores?
- Do you, along with other co-founders/relatives, hold more than 25% of the paid-up share capital in the company?
Answer the above questions in a simple “YES” or “NO” (without any caveats such as “I would like to raise 50 Cr. but even Rs. 25 Cr. would meet company’s present growth needs…”or We don’t have any preference towards retail or institutional investors…” etc.).
Done? If you have answered any of the above questions with a “YES”, then your company is NOTELIGIBLE to utilize this alternative platform to raise capital. Don’t get discouraged since this is only a discussion paper and not the final guidelines!
The discussion paper is aimed to elicit responses from public and entrepreneurs should individually / collectively give their suggestions / recommendations which will go in long way in improving the regulatory framework for fund raising by start-ups.Comments/suggestions are sought in the format specified on page 9 of the discussion paper and need to be sent on or before April 20, 2015 by email to firstname.lastname@example.org.
You can also email me your suggestions at email@example.com. I will compile them and send them to SEBI for its consideration. The second part of this write-up will focus on additional conditions/requirements that you may need to consider if your company is prima facie eligible to utilize this alternative platform.
This write-up is meant for generalinformational purposes only. It is the author’s personal viewand should not beconsidered as the firm’s view.