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IGP (Innovative Growth Platform): The Capital Enabler

Two Cs are extremely critical for startups: Capital and Customers. In India, with a population of 1.3B, customers for B2C or B2B2C startups is not an issue. For B2B startups, although the market in India is promising, global markets are still very important.  Capital on the other hand is trickier. The total capital raised by startups India from 2010-2020 is around $100B. In the same period, startups in China have raised 4x and startups in the US have raised 10x the capital raised by startups in India. India needs to have a stronger mechanism to enable more Capital. There is a need to increase Capital availability in India.

IGP platform proposed by SEBI is a very refreshing initiative that aims to address the Capital issue. It provides another great avenue for startups looking to raise series B and beyond. This platform can double the available capital over the next 5 years. It addresses a key pain point of Capital availability for startups raising between INR 70 to INR 200 Cr. There is a chasm in this space- there are early-stage VC funds and there are PE funds for growth companies. However, there is not enough growth stage VC funds in India to fill this gap. IGP has the potential to be the platform to bridge this void.

The design of IGP has been very thoughtful with the key focus is on technology startups. The precursor to IGP was ITP (Institutional Trading Platform). Due to various reasons including the maturity of the startup ecosystem, the response to this platform was tepid. IGP addresses a few key pitfalls of ITP.

IGP restricts the listing to technology-focused companies with a proven Product-Market Fit and entering its growth phase. The revenue of the companies listing on this platform is expected to exceed INR 50 Cr. This will greatly help in mitigating the risk of listing by ensuring a good understanding of Product-Market Fit beforehand.

The governance issues are well balanced – protects the investor interests but at the same time provides enough flexibility for the founders to have control over strategy and execution. The companies listing on this platform cannot be burdened with the same rules of the public markets as they need to be very nimble. A balance between taking risks and moving fast with financial discipline as against governance practices such as quarterly reporting and stability is advised.

As in the case of investments in Alternative Investment Fund, the platform is selective about its investors. The companies listing on this platform need to operate as startups and not as mature companies. The risks are much greater with these companies and hence it is very critical to have investors who understand these risks and who can understand these nuances. 

M&As have been a key hurdle for startups in India. This is one of the key reasons for companies opting to flip. The platform is designed to simplify the process of M&As, post-listing. Simplifying the M&A process encourages corporates and PEs to participate on the platform. However, this spirit should be maintained in the implementation of the platform as well.  This is one of the critical success factors for the platform.

For the Indian startup ecosystem to become one of the major contributors to the economy, key policy changes are needed. IGP is one such platform that has the promise to increase capital availability significantly.  IGP has the added advantage of enabling exits for early stage investors. This increases the liquidity in the market that will further spur the startup ecosystem- a much needed virtuous cycle.

NASDAQ encouraged and enabled technology startups to list because of its adaptability and easier listing and governance guidelines. This accelerated technology startups in the US. IGP has the potential to be that platform in India. India can build products for the world and has the potential to be startup capital, but it needs a perfect storm of- Capital, Liquidity, Policy, Customers, and Entrepreneurs. IGP certainly has the promise to address the Capital and Liquidity aspects. Most importantly it enables Indian startups to stay in India!

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SEBI & iSPIRT Discuss Modernized Online Platform with Tech Startups and Securities Market Intermediaries.

On 15th October, Mr. U.K. Sinha, honorable chairman of SEBI, had a more than 4 hour meeting with iSPIRT. The goal was to lay the ground-work for a new approach to Paperless and Presence-less Distribution Model enabling a 10X growth in the number of people buying Mutual Funds.

The iSPIRT team was chaired by Nandan Nilekani and included key members of its Open API Expert Team – Sanjay Jain, Pramod Varma and Sharad Sharma. Several Tech Startups like Scripbox, FundsIndia, Perfios, Eko, PolicyBazaar, BankBazaar, Flipkart and Eko participated in this interactive session. Many Securities Market Intermediaries comprising of representatives from HDFC Mutual Fund, Birla Sunlife MF, Quantum MF, CAMS and KARVY also attended the meeting. Nakul Saxena, Fellow Policy Initatives, coordinated the meeting on the iSPIRT side. From SEBI’s side Mr. Amarjeet Singh, Mr. Sujit Prasad, Mr. Ravi Kumar, Mr. Rajesh Gujjar and Mr. Vimal Bhatter also participated.

The discussion focused on three tracks:
1. Regulatory track for simplifying the various processes for Investor participation. There was intense discussion around simplifying or re-engineering the Onboarding process of Retail Investors. It noted several ideas to remove IPVs/wet signatures, speeding up the KYC processes via KRAs’ (KYC Registration Agencies).
2. Technology track focused on providing a paperless and presence-less Online Technology Infrastructure. This was about leveraging the “India Stack” for lowering the onboarding costs almost 100X.
3. Market track focused on enabling streamlining the Distribution Model for increasing the Retail Mutual Fund Investor base. Several ideas around how to increase Investor trust, lower cost of customer acquisition and provide for an Online Only Distribution model were discussed.

Conclusion
It was a very productive working session. There were many learnings for all participating including Tech Startups and Securities Intermediaries. Pilots will now be undertaken starting mid-November.

Its now becoming even more apparent that INDIA will leap-frog the WEST in its Digital Platforms particularly in the Banking and Finance sector. Brace yourself, as we might be entering an ERA of hyper-growth fuelled by JAM (Jandhan, Aaadhar and Mobile) that is powered by the “India Stack”. iSPIRT will talk more about this impending change in the coming months.

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SEBI Startup Listing Exchange – Nasdaq of the East

Efforts of iSPIRT’s List-in-India Policy Expert Team have reaped the desired results. The securities market regulator, SEBI, has announced relaxed norms for a separate platform to allow “new-age companies” having an innovative business model and belonging to the knowledge-based technology sector to list in the country.

The existing legal framework has considerable challenges for a successful listing, including the mandatory track record of distribution of profits for 3 years. Consequently, Indian technology startups (with their usually disruptive business models) have been increasingly looking to list overseas in view of the less stringent regulatory hurdles. It is hoped that the relaxed regulatory regime will provide software product companies with an opportunity to raise capital through listing onthe proposed platform, and give them a viable alternative to offshore listings. The new platform is also expected to provide an exit opportunity to the investors who have invested in such startups, thereby generating further cycle of investment in the economy.

The iSPIRT List-in-India Policy Expert Team is very happy with this outcome. Things have moved really quickly after we kicked off the effort on Dec 19th in Blr. Mohandas Pai has been an excellent mentor and driver of this effort. We are now working hard to address issues that drive exodus at the Seed and Series A stages of software product startups.
More details of the SEBI Policy can be taken from here. Some of the coverage we have got from LiveMint, Business Standard and Economic Times are here.

 Guest Post by Sanjay Khan, Khaitan & Co

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Indian Regulator SEBI meets Software Product Startups.

How often has this happened? An entire team from Securities and Exchange Board of India (SEBI) with its Chairman Mr. U.K. Sinha meeting with Software Product startups in Bangalore to understand their challenges and also provide useful advice by participating in interactive sessions for more than 5 hours.

On 19th December, Mr. U.K. Sinha, Chairman of SEBI and his management team, heard the stories of 8 Indian software product startups. The idea was to understand both the Capital Markets Challenges (like raising capital from FIIs, listing for IPOs, and other book building challenges) as well new developing landscape of Consumer Market Challenges (like changing landscape of payments, pre-payments, recurring payments, etc.)

Mr. U.K. Sinha, was very forthcoming with his admission that new age companies require a completely new paradigm of evaluation and approvals. The new paradigm is needed not just for listing purposes, but also for market regulation and growth purposes. He assured full commitment from SEBI’s end to the budding entrepreneurs that SEBI is very keen, and will do everything within its capacity to help develop the markets keeping in mind INDIA’s growth needs.

More than 90 minutes of conversation and showcasing of New Software Product Startups from Bangalore took place. Mohandas Pai chaired the sessions on iSPIRT’s side. Not all elements of the sessions can be reproduced here; below are some of the key highlights.

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Home grown Startups share their Stories with SEBI

About 8 Indian Startups which started in INDIA, and which have global operations today, presented their stories not just from a valuation and growth standpoint, but from an emotional and proud-to-be an Indian startup viewpoint. To sum it up, almost every story was about Entrepreneurs who dared to dream something not only for them, but for INDIA, and today want the Indian System (Regulators, Government and Institutions) to reciprocate to their needs. They highlighted their list of issues which include the following:

  • 8 companies from various sectors (InMobi’s Manish Dugar, Ezetap’s Byas, Exotel’s Shiv Ku, HotelLogix’s Aditya, iViz’s Bikash, Paytm’s Pratyush, QuickHeal’s Rajesh and Deck.in‘s Sumanth) all presenting the journey of their startups.
  • A common hardship that resonated from most of them, was the unwarranted need of setting up subsidiaries or parent companies abroad, just to attract the right Investors and raise capital for growth.
  • Exemplary companies like InMobi, which raised initial money from Angel Investors today has a reach of about 1 billion people. Ezetap which raised initial money from AngelPrime, today has global operations, however it has its manufacturing, done entirely from Electronic city in Bangalore. Both urged that it should be made easy for Indian companies to raise money from Global Investors.
  • The existing regulations and guidelines make it very difficult for companies to get the right people (investors and advisors) on their Board.
  • Exotel, Hotelogix, Paytm and iViz, all stressed the need for modifying the SEBI/RBI guidelines on ESCROW, where Indian shareholders should have similar opportunities like Global Investors.
  • QuickHeal’s Rajesh highlighted how Kailash Katkar, a college drop-out had built one the most successful product companies out of INDIA over the past 25 years. Today QuickHeal is thinking of its IPO and needs to decide where to list.
  • Requirement for the Regulator to understand all stake-holders and their motivations, and provide for fast and timely intervention for Exits (IPO listings, etc.).
  • Need for new models to evaluate the new paradigm of Tech/Internet Product startups in INDIA.

At the end of this open session, Shekhar Kirani (iSPIRT Fellow; Accel) highlighted the fact that the Indian software product markets were entering an era of hyper growth. It is a new paradigm where not just startups, but all Institutional bodies within India, need to now collaborate and commit, for supporting each other’s need. In this context, he appreciated the interest shown by SEBI.

Policy Expert Team Interacts with SEBI

Following this open session, the visiting SEBI team met with iSPIRT’s “List in India” Policy Expert Team for an intense three hour closed door conversation about specific issues and their resolution. This iSPIRT Policy Expert Team is led by Sudhir Sethi of IDG and has Rajiv Khaitan (Khaitan & Co.), Sanjay Khan (Khaitan & Co.), R Natarajan (Helion), Rajesh Ghonasgi (Quick Heal CFO), Manish Dugar (InMobi CFO) and Harish HV (Grant Thornton) as its members. While specific details of this meeting are not available, Mohandas Pai told me that the session had been very productive.

Insights from SEBI

Mr. U.K Sinha, Chairman of SEBI, has an unbeatable track-record. In his past life, he was the chairman of UTI, and was instrumental in transforming UTI from a 1.2k crore institution to 12k crore institution. Many insights were shared by Mr. Sinha with all the participating Startup Entrepreneurs. Some of the key ones are:

  • Mr. Sinha and his team gracefully acknowledged that they were not just a Controller or Monitor of Capital issues, but they were equally keen to Develop Markets for businesses to thrive.
  • Further, Mr. Sinha highlighted the introduction of SME-ITP platform to facilitate capital raising by SMEs including start-ups which are in their early stages of growth and to provide for easier exit options for informed investors like angel investors, VCFs and PEs etc.
  • He also indicated that SEBI is exploring putting in place a framework for crowd-funding which will provide a much needed new mode of financing for start-ups and SME sector and increase flow of credit to SMEs and other users in the real economy. In this mode, SMEs and start-ups will be able to raise funds at a lower cost of capital without going through rigorous procedures.
  • It was indicated that SEBI is keen to facilitate capital raising by such companies to help them achieve their full potential.

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New Wind is Blowing

I saw a collaborative approach to problem solving that I haven’t seen before. iSPIRT’s policy approach is refreshing different from the traditional lobbying mindset that one sees in trade bodies. And SEBI is clearly open to listening and learning. It was amazing to see how SEBI as a regulator and iSPIRT as a think tank were both focused on the same national goal. I came away from the meeting with optimism and a spring in my step.