Boost to startups: What Sebi's move to ease capital market access means

The Securities & Exchange Board of India (Sebi) move to allow easier access for startups and small and medium enterprises (SMEs) to the capital market by getting them to list without an initial public offer (IPO) could not have come a day too soon.

Startups and SMEs have been starved of adequate avenues to raise capital, and this new leeway will help them access public funds much easier. This is also in line with Palaniappan Chidambaram’s move of boosting the SME and startup ecosystem, something he announced in the Union Budget 2013.

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At a time when the equity markets remain choppy and uncertain, there is merit in the move to allow SMEs and startups with a proven track record to list themselves directly on exchanges without going through the IPO route which could be cumbersome for such firms. There have been several cases where such ventures and their investors have been waiting for a listing via the IPO route, but the state of the capital market has forced them either to wait or to abort the issues altogether. A direct listing will add currency to their stock and providing a much-needed exit route to existing investors who are stuck in many such ventures for long.

Alongside these moves, issuing clear guidelines for angel investors is a move which is important in the light of the role angel investors and associations of such investors are increasingly playing in the entrepreneurial environment. Angel investors need clear and unambiguous treatment as they perform an important role as catalysts not just by investing in startups but also by mentoring them.

Of late, several younger entrepreneurs who have their own successful ventures have also started investing in startups and turning mentors to them, providing a major boost to new ideas and helping them start up and then scale up.