Market regulator proposes platform to help start-ups raise funds

The Securities and Exchange Board of India (SEBI) is considering an alternative investment platform targeted at the country's booming internet start-ups, relaxing some key requirements to encourage them to list at home.

In a discussion paper published on Monday, the SEBI said it would relax rules, but would also limit fundraising on the platform from institutions and wealthy investors - as opposed to retail investors, who have flocked to internet listings - given what it said were the risks involved.

"SEBI is recognising a change in the market scenario," said Prithvi Haldea, chairman of Prime Database which tracks primary capital markets, welcoming the proposals.

SEBI's proposed changes come as many Indian start-ups including online marketplaces Flipkart and Snapdeal are preparing for initial public offerings, hoping to raise capital and to give some of their early backers an opportunity to cash in on investments worth billions of dollars.

Most are reported by industry analysts to be looking abroad, specifically at Nasdaq listings in the United States, due to tougher rules at home, and a lack of listed rivals, which makes it harder to put a fair value on newly traded shares.

Among the requirements SEBI said it could relax is India's requirement for a lengthy lock-in period of up to three years for a "promoter" investor, who holds at least 20 percent.

That has been reduced to a minimum of six months.

The lock-in has been a key concern for some of India's start-ups and their advisers, as they move towards full public share offerings but investors hold smaller stakes and typically aim to be more nimble with investments.

SEBI also relaxed rules on the amount of disclosure which firms need to provide on the use to which funds will be put.

It said, moreover, that the issue price could be decided on the basis of metrics other than earnings per share and price earnings ratio -- given few start ups are yet profitable.

"If the capital raising process in India is not made further relaxed for such issuers, they may be driven to list on stock exchanges outside India," SEBI said in the discussion paper.

"Considering the role of such companies in nation building and their potential in terms of generating employment and income as well as fostering innovation, it is imperative that necessary enabling environment is provided for these enterprises to flourish."

India has experienced a boom in private investments in start-ups, and a large number of funds including Temasek Holdings, US-based Accel Partners and Japan's SoftBank Corp  have invested billions of dollars in online firms. Responses to SEBI's proposals are due by April 20