Snapchat in March 2017, launched IPO and raised $3.4 billion with its sale of 200 million shares valuing the company at $24 billion on a very first day. The uniqueness about the launch was that it made the shares offered in the IPO without giving any voting rights to public investors. Besides, founders held super-voting rights (around 70 percent of the voting rights in the company) with themselves, offering lesser voting rights to the pre-IPO investors.
The Securities and Exchange Board of India, which recently tweaked startup listing and fundraising norms, is planning to introduce a similar model for startups in India. In an attempt to revive startup listings, a Sebi-appointed committee discussed the proposal of allowing companies to sell shares with different voting rights.
This means that startup founders will be able to retain the control of the company even after selling shares at various stages. Besides, they will be able to avoid greater shareholder scrutiny even after the listing.
In the appointed committee, it was pointed out by the members that ‘ceding control’ was the key factor which was preventing startups to go for listing.
The proposal also suits the requirement of new businesses that burn cash in initial years and keeps experimenting with new models.
Other modifications that SEBI has brought about
For the past three years, Sebi has updated its rules multiple times to support the growth of startups.
Last month, the SEBI set up a group of industry experts to examine the possibility of letting local companies directly list their shares overseas.
Back in 2016, Sebi proposed a slew of changes for the startup listing platform to make it attractive for new-age companies to consider going public in local markets.
However, the condition for startups hasn’t changed much even after the multiple proposals and changing rules.