Providing an all-new platform for startups in order to discourage them from listing overseas, the Securities and Exchange Board of India (Sebi), has floated discussion paper on alternate listing platform. It proposes that companies in software product development, e-commerce and also new age companies having innovative business models will be able to access the alternate platform.

In an interview to CNBC-TV18, Rajendra Nalam, Partner-M&A at BMR Advisors, said it makes sense for Sebi to create platform for start-ups and that the market regulator seems to have covered all areas in its discussion paper on start-up IPOs.

Below is the transcript of Rajendra Nalam’s interview with Shereen Bhan on CNBC-TV18

Q: What does the Sebi discussion paper mean for the start-up universe and do you believe that this alternate listing platform is essentially a step in the right direction?

Rajendra Nalam Partner-M&A|BMR Advisors

A: Yes, absolutely. First up this is great news for start-ups, it helps them become more visible. As you know number of start-ups these days they either look to seed funds or angel investors or friends and family for capital. This essentially helps them become more visible to potential investors and it helps the entire process of fund raising become far more organized. It is also a fitting tribute to the new age businesses including e-commerce which are attracting hundreds of millions of dollars as it is anyway. So, it only makes sense for the regulator to take a proactive step in direction and continuing with their efforts around real estate investment trusts, infrastructure investment trusts and so on. The platform for start-ups completes the value chain because investors now can either access, can provide capital to start-ups, small and medium enterprises (SME) sector as well as fully mature companies.

Q: Let us talk about some of the specifics in terms of the eligibility criteria. The minimum application size is pegged at Rs 10 lakh, the lock in is set at about six months. Two kinds of institutional investors, Qualified Institutional Buyers (QIBs) will include family trusts and institutional investors with the QIB is allotted the majority chunk of 75 percent. What do you make of the details when it comes to the eligibility criteria that the regulator is talking about?

A: Clearly these are still guidelines; these are still early stage discussion papers. I don’t think we have enough details at the stage. Be that as it may the direction that they have taken. The regulator spotted all the important issues. They understand that they may not be a large promoter offering the lock in. They understand that only large investors with sophisticated understanding of these new age business can participate. In terms of usage of proceeds they have said we will keep it fairly liberal. So, looking at all of these they have also said that full prospectus needs to be filed which means disclosures is going to be fairly complete

In terms of the changes to important things that come to mind when I look at the guidelines, one is the 25 percent condition that they have put in as the condition that no single promoter should own more than that. I would imagine that a company which has already been diluted below 25 percent for the promoters and those acting in concert has probably gone through a few rounds of fund raising already. If that is the case I don’t know if they would need to reach a start-up platform for this.

The second issue that needs close attention is the fact that a number of investors particularly at the early stage come in using convertible instruments, fairly productive rights and a whole framework of governance, how will all of that get managed in a fully listed scenario. These are areas that the regulator will surely take a closer look at.