Will market regulator's plan to simplify start-ups' listing help SMEs?

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Aparajita Gupta | 29 Jun, 2015
The spirit of entrepreneurship got a shot in the arm as India's market regulator decided to simplify the framework for raising of capital by technological startups. But how much will it help them? While most of them feel it will open up opportunities, others feel the traditional route was better.

"In the last two years, the majority of the funds raised by startups have gone to three to four big companies. It was difficult for the smaller entrepreneurs to get attention of the funding companies. But now with the SEBI (Securities and Exchange Board of India) rules, it will open up opportunities for smaller entrepreneurs," Mandeep Manocha, chief executive officer (CEO) and co-founder ReGlobe, told reporter.

Earlier smaller startups would only get funds from angel investors and venture capitalists (VC). Now with SEBI's simplified rules, tech startups can also raise money from the public.

According to reports, ReGlobe raised USD 1 million from a venture capital firm almost two years ago. The Gurgaon-based company has 60 employees across 40 cities in India and plans to expand its business in Southeast Asia and the UAE after a year. It is planning to raise a second tranche of funds in the next three-four months.

ReGlobe is a re-commerce market-place, which offers an online platform to sell old, or used electronic gadgets such as laptops, mobile phones, gaming consoles, tablets and air-conditioners.

In a statement issued on June 23, SEBI said: "The Board undertook a review of the extant regulatory framework in the primary market and noted the suggestions of market participants on making the existing avenues for capital raising amenable for accommodating a larger number of start-up companies."

"In a country like India, which is ranked fifth globally in terms of the combined size of the start-up industry, this announcement by SEBI is extremely positive for entrepreneurs and domestic investors alike, Aamir Jariwala, secretary, E-Commerce Coalition of India, and co-founder, Karma Recycling, said.

"India may emerge as the preferred choice for listings instead of overseas markets and qualified domestic investors can more easily benefit from the phenomenal growth promised by some of these enterprises," he added.

The stakeholders, however, said it is a welcome move by SEBI, but clarity about the process will come with time.

"In private markets fund raising was easier. Tech startups need times to prove themselves and their business models keep changing. So, it was easier to take funding from angel investors and VCs. If one is going the IPO way, then the public's expectations are much higher as they expect the company to perform well," said Bipin Preet Singh, founder and CEO of Mobikwik.

"We have no current plans for an IPO. We are focussing on growth. We are adequately funded. We first raised USD 2.5 million and then USD 25 million six months ago," he added.

Started in 2009, MobiKwik is a mobile wallet company with over 17 million users. The company witnesses 400,000 unit transactions a day and employs 220 people. It soon plans to set up offices in Chennai, Mumbai and Bengaluru, where it sees more traction.

"This move by SEBI is likely to create an exit ecosystem for both investors and entrepreneurs. The entrepreneurs will be able to draw greater funding from investors," said Raju Vanapala, founder of LearnSocial.

"Most start-ups so far were keen on listing in the foreign stock exchanges, given the current restrictions, but with the current move by SEBI, more investors will be willing to invest in India and more startups will also list in the country in the future," he added.

(Aparajita Gupta can be reached at aparajita.g@ians.in)