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More Improvements needed to the IGP

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January 17, 2019

What is the issue?

The revamped Innovators Growth Platform (IGP) set up by the SEBI to support start-ups and investors can broaden its mandate apart from facilitating easier exit.

Why was the ITP revamped to IGP?

  • The Institutional Trading Platform (ITP) started in 2013 helped investors in start-ups divest their holdings without making a public offer.
  • The profitability and other disclosure requirements are less stringent compared to the SME platform or the main board of exchanges.
  • In the five years since its launch, only a handful of companies have listed on the ITP of both the BSE and the NSE.
  • The primary factor hampering growth of this platform appears to be its narrow mandate.
  • Following a review in 2018, the rules governing ITP were tweaked in December.
  • The Indian regulator has shown salutary initiative in launching the Innovative Growth Platform (IGP), with the widened participant base and some of the difficulties faced by companies ironed out.
  • While the ITP was launched with the sole intention of providing exits to Qualified Institutional Borrowers (QIBs) such as angel investors and venture capital funds.
  • The regulator is now conceding that start-ups can be funded by other investors too besides QIBs such as family trusts.
  • The regulator is also willing to accept start-ups funded by individuals or other companies, by forming a new category of pre-listing investor accredited investors.
  • SEBI has now laid down that exiting investors should have held stake in the company for two years prior to the listing.
  • This ensures that investors do not use the IGP platform to make quick exits from their investments.
  • The ICDR (issue of capital and disclosure requirements) regulations which lay down that no individual or collective group, could hold more than 25 per cent of the post-issue capital, has now been removed.

What improvements can be done further in the IGP?

  • Funding growth - Besides providing exit to existing investors, the IGP can become an avenue for funding future growth of start-ups.
  • If a robust ecosystem is created on the IGP where investors of all hues (foreign, domestic, retail, HNI and institutions) participate actively, this investor base can be tapped on a regular basis by start-ups through public issues.
  • Besides providing greater visibility, it will lower their dependence on Private Equity and Venture Capital.  
  • Investments for retail - IGP can showcase eligible start-ups in which investors can park some money.
  • Purchasing stakes in new businesses through an exchange platform may be a better alternative compared to buying through other avenues, as basic information is made available on the exchange website and periodic disclosures are mandatory.
  • In this regard, the recent move to reduce the trading and application size on the IGP to Rs. 2 lakh, down from Rs. 10 lakh earlier, can turn out to be a game-changer.
  • However care also needs to be taken to protect the more vulnerable investors from this platform, since many of these start-ups are yet to break even or turn profitable, they do carry greater risk.

 

Source: The Business Line

 

 

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