'Promoter' tags make a comeback as startup founders look to rewrite IPO playbook

When Paytm went public in 2021, founder Vijay Shekhar Sharma made a striking choice: he decided not to be classified as the company’s promoter. It was among the first major instances of a startup founder at a large tech IPO taking this route.

The decision later came under SEBI’s scanner for how it was used in Paytm’s ESOP allocations and disclosures. But at the time, it sparked a broader shift in how India’s new-age companies were approaching the transition to public markets — the model was later mirrored by firms like Zomato, Swiggy and FirstCry. Promoter tags were increasingly seen as optional, and many founders chose to opt out to avoid regulatory lock-ins and related obligations.

Three years later, that playbook is being rewritten.

Founders of which companies are promoters?

A growing number of founders — from Lenskart and Urban Company to Groww, PhysicsWallah, Ather and Bluestone, among many others — are now embracing, or have embraced, the promoter tag ahead of their public listing, signalling a clear change in strategy.

According to several promoters, investment bankers and governance experts Moneycontrol spoke with, the change is being driven by regulatory relaxations, shifting investor expectations, and founders’ efforts to reassert control. At its heart, it reflects a renewed emphasis on accountability — on clearly signalling who stands behind the company once it goes public.

“When startups go public, there are always a few key questions. First, around pricing. Second, around who ultimately takes responsibility for the company’s fate,” said Kashyap Chanchani, Managing Partner, The Rainmaker Group (TRMG). “If founders choose to tag themselves as promoters, it signals their willingness to live and die with the company. It reflects greater confidence and commitment to retail investors.”

Why are more founders taking the promoter tag now?

For many startup founders, choosing to be classified as promoters is not just about sending signals to public investors — it’s about reclaiming strategic control at a critical juncture.

Years of fundraising often leave founders heavily diluted by the time they go public, with little leverage against large private equity (PE) and venture capital (VC) shareholders. Promoter status gives them a way to consolidate their position and ensure they remain in the driver’s seat once the company lists.

“Being a promoter means being locked in for years, it shows commitment and gives confidence to shareholders who are looking to stay invested for the long term. I cannot be thrown out overnight because I’m in the driver’s seat, not some PE/VC fund,” said the founder of a recently listed startup, on condition of anonymity.

“PE/VC funds are like vultures looking to take away as much (ownership) as they can. The founder is ultimately left with a low single-digit stake and starts thinking about their exit eventually,” he added.

While control is a key motivator, founders also acknowledge that taking on the promoter tag comes with added scrutiny — and in some cases, it’s not entirely a choice. “Having the promoter tag is not a power, it’s a responsibility. You become accountable to your shareholders and are watched more closely,” said another founder who recently went public.

In some cases, SEBI rules also mandate that a single shareholder with over 10 percent ownership must be tagged as a promoter. “So if any founder’s ownership is over that threshold, they become a promoter more because of the rules, less by choice,” the founder said.

"That said, it doesn’t really matter if the founder is a promoter or not. No one doubts the intentions of the person at the helm to continue growing the business. They are at the helm, have ownership so there’s all the incentives to grow the company,” he added.

This change is particularly striking when contrasted with earlier IPOs from firms such as Paytm, Zomato, Swiggy and FirstCry, where founders deliberately opted for “promoter-less” structures. In most of these companies, the founders still hold a low single-digit stake. What was once a way to avoid regulatory lock-ins has now become a tool for founders to strengthen their strategic position in the public markets.

How much ownership do startup founders typically have?

The renewed focus on control also comes against the backdrop of steadily shrinking founder ownership in Indian unicorns.

As Moneycontrol reported earlier, the median stake held by founder groups has fallen from 24.6 percent in 2018 to just 13 percent in 2024, according to Tracxn data.

This erosion, accelerated by successive funding rounds in a tougher capital-raising environment, has left many founders with less influence just as public market investors are demanding stronger accountability.

ALSO READ: Lenskart co-founder Peyush Bansal to buy company shares at a valuation of $1 billion, a tenth of its targeted IPO valuation

But have regulatory rules made it easier for founders to become promoters?

While some say PE/VC funds take away too much ownership, it is also to be noted that, earlier, regulatory norms did not allow founders to become promoters easily.

For instance, SEBI’s earlier rules on ESOP treatment and promoter contribution created hurdles for many founders. Much of their ownership was tied up in ESOPs, which were subject to a mandatory three-year lock-in if classified as promoter contribution, making the tag cumbersome for already diluted founders.

These requirements were one reason several founders during the first IPO wave — including those at Paytm and Zomato — chose not to be classified as promoters, giving them more flexibility to sell their shares.

That changed in 2025, when SEBI relaxed ESOP rules and tweaked promoter contribution norms, removing much of the earlier friction while retaining key signalling mechanisms for public investors.

“Factors like SEBI relaxing ESOP norms and tweaking the minimum promoter contribution norms make it easier for founders to operate as promoters,” said TRMG's Chanchani.

How are investors reacting to this shift?

As founders grapple with shrinking ownership and look to reassert control, they’re also contending with a markedly different investor landscape than during India’s first wave of startup IPOs.

At the time, many companies chose promoter-less structures for strategic and regulatory reasons. But industry watchers say the market environment has evolved, and public investors are now paying closer attention to how founders position themselves during listings.

“There’s definitely some investor pushback because investors expect founders to have skin in the game,” said Shriram Subramanian, founder and MD of advisory firm InGovern. “The feedback from the market is that founders can demonstrate this by taking on the promoter tag — otherwise, it can look like they’re distancing themselves and gearing up for an exit.”

Being a promoter also means a founder is agreeing to a three-year lock in. In the first year of being listed, the rules do not allow any dilution of stake and between year one and year three, the promoters can only dilute 20 percent of their stake, as per the founder cited above.

What does this mean for upcoming IPOs?

The shift towards founders embracing the promoter tag is part of a deeper reset in how startups are approaching the public markets. What was once seen largely as a regulatory consideration has evolved into a balancing act between liquidity needs, investor scrutiny, and the desire to retain control in the public markets.

“The primary consideration for founders when deciding whether to identify as promoters is liquidity. If they’re willing to wait a couple of years to sell, they might as well do it as promoters. Also, investors are asking tougher questions of founders and investment bankers. As a result, bankers and lawyers are advising founders to take on promoter status,” said Subramanian.

It’s a shift shaped by three forces pulling in the same direction: investors demanding greater accountability, SEBI removing older frictions, and founders responding to years of stake dilution by reasserting their role at the helm.

Together, these trends have turned promoter status from a compliance box to tick into a deliberate strategic signal — about who’s ultimately in charge, and how long they plan to stay that way.