Sebi bar on start-up funding by small investors to continue

Market regulator Securities and Exchange Board of India (Sebi) has ruled out any rethink on its decision to keep small investors away from the newly-created platform for start-ups.

Sebi's assertion comes amidst proposals by start-ups looking to list themselves on the Institutional Trading Platform (ITP) to allow small investors get a piece of the action.

However, Sebi chairman UK Sinha said any change in policy to allow small investors could be considered only after the start-up ecosystem reaches stabilisation, which could take a few years.

''At this stage of market development, our main effort should be to establish the credibility of these companies where informed investors can come in and are satisfied that the companies are well run… rather than bring small investors,'' he said at an interactive session on 'Start-ups and SME IPOs', organised by the PHD Chamber of Commerce and Industry.

The ITP opens a new window to the stock exchange for e-commerce, data analytics, bio-technology and other start-ups to enter.

Sebi had, however, stipulated that only institutional investors, and not individuals, can access the ITP. The minimum investment size is set at Rs10 lakh.

Sinha told reporters that ''Start-ups by design are risky. So, we have consciously kept small investors away from this market. When issuers (start-ups) finally go to the main board, everybody can participate.''

He agreed that start-ups may offer handsome returns, but pointed out that there could be losses also. ''This is not only in India but all over the world. The name (Institutional Trading Platform) suggests that this is a market for institutional investors and not for small investors,'' he added.

Sinha said there was no need to panic about start-ups listing outside India, adding that Sebi was ready to finetune its norms to help in the development of start-ups. He said Sebi would take up with the government certain tax-related issues affecting development of the start-up ecosystem.

Many start-ups are shifting to the US or Singapore because of the investor preference there, industry representatives pointed out, adding that investors are still not attracted to this segment in India.

Sinha said one of the reasons for start-ups going abroad is a ''perception'' that there are not enough sophisticated investors within the country. Also, there is a view that the pool of capital available abroad is not available here.