New age tech startups may face a tough time in listing shares

Bengaluru, 19 February New-age technology startups will have a tough time in getting approval from the market regulator if Sebi's proposal of disclosing key performance indicators comes into force.

Sebi is now mulling to introduce provisions that will make it obligatory to first disclose their key performance indicators considered for arriving at the basis of issue price in the offer documents.

According to a consultation paper, the market regulator may ask such tech startups to share details about their valuations based on issuance of new shares and acquisition of shares in the past 18 months before filing draft offer documents.

The consultation paper has come at a time when stocks of several technology startups have plunged more than half of their recent highs. Some of the companies' shares are trading at below their issue price in recent days. Analysts are of the opinion that the issue price was inflated without taking into the critical financial parameters, which led to investors losing money.

These proposals if become operational will cover those companies which don't have three-year profitability track record. Provisions for all other companies will not change, the consultation paper said.

"It is obvious that disclosures in 'Basis of Issue Price' section, particularly for a loss making company, are required to be supplemented with non-traditional parameters like key performance indicators and disclosure of certain additional parameters such as valuation based on past transactions/ fund raising by issuer company," Sebi said in the consultation paper.

According to the proposed regulations, an issuer company should disclose all material KPIs (key performance indicators) that have been shared with any pre-IPO investor at any point of time during the three years prior to the IPO.

Additionally, the market regulator has suggested that comparison of KPIs with Indian listed peer companies and global listed peer companies should be disclosed in the offer document and comparison of KPIs over time should be explained.

Apart from KPIs, an issuer firm has been proposed to make disclosure of valuation of issuer company based on secondary and primary sale, in the 18 months prior to the date of filing of the red herring prospectus.