India’s market regulator has tightened disclosure rules for companies seeking initial public offerings after more than half a dozen tech startups underperformed in the past year and a half.
Firms seeking to raise funds through public offerings are now required by law to disclose key performance indicators and set valuations based on past transactions and private funding rounds, the Securities and Exchange Board of India said in a statement.
The regulator said the new move is aimed at bringing out the difference between retail and private investors. He said retail investors don’t get enough access to the key indicators of the companies they’re buying shares of, while private equity backers have been able to track and work with that information internally for years.
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Startups are getting the option to pre-file their filings and get regulatory review, just like US and Canadian startups enjoy S-1 filings.
“The pre-filing mechanism allows issuers to make limited communications without having to disclose any confidential information. Further, the document containing SEBI’s initial observations will be available to investors for at least 21 days, thereby helping them better in their investment decision-making process,” the regulator said.
The capital markets regulator is tightening disclosure norms at a time when all startups, including Zomato, PolicyBazaar and Paytm, which went public last year or this year, are trading at less than half of their initial listing prices.
As the market changes, investors are increasingly adjusting the valuations of the late-stage startups they support, making it even more critical for retail investors to make more informed decisions. SoftBank recently lowered the value of the budget hotel chain, a $10 billion company, to $2.7 billion. The startup is looking to be valued at more than $10 billion in a listing by early next year.
Citing complaints from retail investors, SBI chairman Madabi Puri Buch (pictured above) explained at a conference earlier this month that the market regulator has no business telling startups how to price their stocks. But she said the regulator works to help investors make informed decisions.
Much has been said about the IPO pricing of new tech companies. Our vision is simple. The price you choose to do your IPO is your business. We have no business suggesting the price.” Butch said.
“If a company invested at Rs 100 three or six months ago and now wants to come to the market at Rs 450, no problem. But when you explain… explain to the investor the difference between ₹ 100 and ₹ 450. What has changed,” she added.