IndiaTech, an industry association that represents startup founders and investors, has suggested to the markets regulator that the net-worth requirement for shareholders with superior voting rights should be decided individually and not as part of the promoter group.
Previous month, the Securities and Exchange Board of India (Sebi) had suggested to ease regulations governing the issue of shares with superior voting rights (SR shares) and sought feedback on it. The move was targeted at addressing legacy issues for startup founders looking to list their firms and potentially support them retain control even after they have diluted their stake.
The concern rises from the fact that family members of SR shareholders may also hold a stake in the firm, and such investments, according to rules, would not be excluded while computing the collective net worth of the SR shareholder.
In its recommendations to Sebi, IndiaTech has also reiterated that the net-worth threshold should be retained at Rs 500 crore.
Rameesh Kailasam, chief executive of IndiaTech, said that another change needed in regulation is around the promoter’s minimum contribution of 20% after the firm is listed. “We recommend that, in case of HGTCs (high-growth technology companies), Sebi should ideally consider exempting the promoters from complying with the minimum promoters’ contribution requirement, especially for companies which take the QIB route, since these companies have gone through multiple rounds of due diligence and capital infusion from institutional investors,” Kailasam stated in his note to the regulator.
Typically, most Indian founders of startups have less than 10% stake by the time they are ready for an IPO, as they have diluted their holding in the firm to raise capital from investors.
IndiaTech has recommended that the regulator should consider bringing this down to 5%, or even mandate promoters with less than 20% post-IPO capital to lock in their shares for a year.
“On account of multiple rounds of equity infusion, the shareholding of promoters is often reduced to very low levels and would be unable to meet the minimum promoters’ contribution requirement