Have you wondered why many Indian startups list in stock exchanges abroad and not in India? The reasons for this, of course, are plenty. But one of the major ones has been because startup founders don’t want to lose control of their company after its listing through an IPO.
When a company lists abroad, it can do so by selling something called Superior Voting Rights shares. Commonly known as SR shares, these shares don’t carry the traditional one-share-one-vote framework. Holders of SR shares can have a higher number of votes – in the range of 2 to 10 votes per share.
Such shares allow startup founders to control their company and uphold its vision even after new investors buy into it.
The concept of Superior Voting Rights share was first introduced in India by the Securities and Exchange Board of India (SEBI) in 2019. At that time, SEBI had said that this framework was put into place for issuer companies that are intensive in use of technology, which is basically tech startups.
The framework also has checks and balances such as coat-tail provisions and a sunset clause. While the former brings clarity to aspects where SR shares can have the same rights as ordinary shares, the latter defines the time period for which an SR shareholder can have superior voting rights.
Until now, an SR shareholder couldn’t be part of a promoter group having a net worth of more than Rs 500 crore. Also, the minimum gap between the issuance of SR shares and filing of the Red Herring Prospectus was 6 months.
New SR share rules
In a Board Meeting on 28 September, SEBI made relaxing amendments to these provisions.
According to SEBI’s press release, the net worth has been increased to Rs 1,000 crore and the time period has been reduced to 3 months.
These changes are expected to be good news for the startup community in India. 2021 has already seen many tech startups going public or filing for an IPO. Such a progressive move by the market regulator will further encourage startups to list in the equity markets.
If you are an early-stage startup founder, you can check out the Paytm Startup Toolkit to kickstart your journey towards IPO.