India wants its startups to try ‘e-IPO’ instead of taking cash from foreign VCs

The Securities and Exchange Board of India (SEBI) this week decided to make it easy for local startups to get listed on India’s stock exchanges. The relaxed regulations allow them to have a separate platform called Institutional Trading Platform. The idea is to help startups raise funding from Indian sources instead of depending on investors abroad.

Narendra Modi, Prime Minister of India, started the “Make in India” campaign last year. It aims to revive and promote the Indian manufacturing sector. The thought of helping Indian companies to produce in India has encouraged moves in the manufacturing sector, contributing to putting Indian goods in the global market. Earlier this year, it was reported that Indian-made Ford Eco-sport, small SUV, is going to be shipped to the US and start selling from 2017. A few days ago, aircraft manufacturing giant Airbus revealed its plans to increase outsourcing its aircraft components manufacturing spend in India to US$2 billion by 2020.

SEBI’s move to support Indian tech startups to raise investments from India aligns with the aims of Modi’s campaign. VCs actively investing in India tend to be based in Europe, the US, Japan, and Singapore, such as Softbank, Sequioa Capital, and Tiger Global. Although this is undoubtedly a positive thing, Indian government seems to appreciate it better if the startups’ ownership is restricted to its home base.

As per NASSCOM, India currently has the third largest startup ecosystem and the launch of e-IPO might help create a lot more Indian entrepreneurs. Navneet Singh, co-founder and CEO at PepperTap, said in a statement, “With this startups might start to sprout in India, due to the double benefit of massive target population and financing opportunities, which the relaxation of the released listing guidelines has greatly simplified.”

Easing the rules

The stipulations have been eased to accommodate a manageable process to raise capital. The minimum investment requirement for the process of getting listed is INR 1 million (US$15,700) for tech startups. The contribution of investments from institutional investors has been reduced to 25 percent. SEBI chairman, U K Sinha told reporters that there are over 3,100 startups in India and these businesses are looking to get listed outside of India. That led to creating a special provision for them.

Some in India’s tech community welcomed the arrival of the e-IPO system. In a statement, Shiju Radhakrishnan, founder and CEO at iTraveller said, “It’s an important step in the right direction, as it will create a level playing field for the early stage startups […] Easing norms for listing will help startups get access to the local money available in plenty rather than be dependent on a handful of institutional investors.”