A SEBI-appointed committee has discussed the proposal of allowing companies to sell shares with differential voting rights at its first meeting held last week
Market regulator Securities and Exchange Board of India (SEBI) is mulling over implementing a ‘Snapchat model’ for facilitating listing of Indian startups, Business Standard reported.
During its initial public offering (IPO) last year, the multimedia messaging app offered shares without any voting rights. The move caught the market's attention as it allowed founders to tap the market without giving up the freedom on decision-making.
The company also did not provide investors with revenue forecasts to keep regulatory burden low, ensuring no business hindrance. It also helped in avoiding greater shareholder scrutiny that came with raising public money.
A SEBI-appointed committee has discussed the proposal of allowing companies to sell shares with differential voting rights at its first meeting held last week to boost startup listings, three people aware of the development told the paper.
The market regulator has been attempting to boost startup listings in the market, but its previous attempts failed to excite the market. Sources told the paper that most of the committee members listed ‘ceding control’ as a key consideration that prevented startups from going public.
The SEBI panel feels that allowing startups to sell shares without giving up control could be a game changer as this would reduce chances of diluting the stake of the founding members.
The proposal has got mixed reactions from experts. “It is a good proposal since it allows a startup to separate its ownership and economic interests. There are also similar provisions in the Companies Act known as differential voting rights. Such provisions will allow the boards of startups to take decisions that are in the best interests of the company without having to fear a corporate coup or backlash from minority shareholders. However, having a strong corporate governance structure is a prerequisite for allowing any such provision,” Sudhir Bassi, partner, Khaitan & Co, told the paper.
A section of the market has also raised concerns over accountability and stated concerns that interests of minority shareholders could be overlooked. The panel discussed restricting the platform to only seasoned institutional investors such as private equity to address the issue.
The panel also discussed allowing a single institutional investor to purchase more than 30 percent stake in a startup during or after listing. According to current regulations, no single institution can own more than 10 percent in a single company.Sources said the SEBI committee will conduct further consultations with all stakeholders and submit a report to the market regulator next month.