Sebi ruling on DVR brings cheer to start-ups
The recent ruling on differential voting rights (DVR) by the Securities and Exchange Board of India (Sebi) has brought cheer across the start-up community. However, many startups would still want to wait and watch before they decide on their listing plans.
Sebi has said that promoters/founders, who have net worth of ~1,000 crore, can now have superior voting rights. With this ruling, many founders and investors that Business Standard spoke to said India is now at par in ruling with several other overseas markets, especially the US.
However, many players from the start-up ecosystem also said while this is a huge boost for tech start-ups wanting to list in India, whether this will reduce the number of companies wanting to list overseas will need to be evaluated.
“These are very interesting times to be in the Indian startup ecosystem. I am very excited to see firms like Zomato, Freshworks (which went for an initial public offering or IPO) and many other companies lined up to go public. It is fascinating to see their success and IPO, especially in India,” said Vamsi Krishna, chief executive officer (CEO) and co-founder of edtech firm Vedantu, which has just become a unicorn.
Vedantu is planning to go for an IPO by 2024. But Krishna said it is still early and one of the advantages the company has is the time to process how these companies are faring, and how these rules and regulations are also shaping up.
“Since Vedantu is an Indian brand and we primarily operate here, my preference would be to list in India, if everything continues to be as exciting as it is now,” said Krishna.
Industry experts and players said listing in the US or international market is also about the valuation and access to funding. “For companies that have India-focused businesses, especially consumertech firms with focus on the Indian market, listing in India now can surely be an option, especially after Zomato. But then, there are Saas (software as a service) players who are better valued in the US markets. Or start-ups that have got into a structure that makes it conducive to list overseas. We will have to wait and watch,” said an investor of a VC firm.
One bone of contention even in this is the threshold of ~1,000 crore. In 2019, Sebi had issued a framework for the issuance of superior voting rights shares. However, not many companies were able to take advantage as it was considered too restrictive. Earlier, such shares could be issued only by individuals who were part of a promoter group with net worth of less than ~500 crore. The threshold has now been increased to ~1,000 crore.
Rameesh Kailasam, CEO, Indiatech.org, which has been working with Sebi for the past three years to bring in regulations that favour start-up listing in India, said, “We welcome Sebi’s decision to further relax the threshold on superior voting right shares and timelines for their issuance. Our stand has been that ideally the net worth clause should not be applicable to any first-time entrepreneur or founder who has not listed before in India.”
Various industry bodies have suggested to Sebi that the threshold limit should not be there for first-time entrepreneurs or founders who have not listed any of their start-ups before. Since Sebi has concerns when it comes to old economy promoter-driven companies, it has been taking step by step action on this.
“The good thing Sebi has done is that the net worth of your securities in the company, which is giving you these DVRS (differential voting rights shares) will not be counted. So, what that means, say in Zomato’s example, is that they will take Deepinder Goyal’s (Zomato founder) net worth but will not include the worth of Zomato shares. They will look at all the other assets except for Zomato shares. If it’s less than, let’s say ~1,000 crore, he can actually go for these DVR shares. It’s just that it’s a huge positive step forward and this also makes India more attractive right now,” said Siddarth Pai, founding partner of 3one4 Capital.