Startups usually seek the path of stock market to raise funds and the Securities and Exchange Board of India (SEBI) has now relaxed the rules regarding promoter contributions. The move is believed to be making easier for budding companies to start with their IPOs.
SEBI has lately made changes in the norms for minimum promoter contribution (MPC) and this has made easier for the domestic startups to tap into the domestic public markets for their funding requirements. Non-individual investors holding 5 percent or more of the post-offer equity share capital can now contribute to the MPC and simultaneously not to be classified as promoters.
The rules until now wanted the IPO-bound companies to ensure that promoters contributed 20 percent of the post-offer paid-up share capital on a fully diluted basis. This was often faced with challenges and more for the new-age tech startups where the founders held minimal shares.
The new rule expands the list of such eligible investors who can contribute towards meeting the MPC. More entities can now participate and make it easy for the founders to ensure smoother compliance with regulations.
Experts state the move of SEBI is a positive step towards supporting IPO-bound companies and particularly in the technology sector. It is an alignment with the evolving landscape of startups in the country.
SEBI’s move aims to facilitate the IPO process and promote ease of doing business for emerging companies. It is now expected to encourage more startups to explore the public markets for raising capital. As a whole, the step is to drive growth as well as innovation in the Indian startup ecosystem.
