Start-ups are seeking a different set of parameters which can replace the profitability clause, mandated for listing on the Innovators Growth Platform (IGP).
A fortnight back, SEBI proposed a framework for start-ups wanting to list on the smaller bourses. One of the mandates by SEBI is that a start-up should be EBITDA- positive for 3 years prior to the listing.
Protecting investors
Some industry watchers pointed out that this move is aimed at protecting retail investors. However, many others believe that this rule should be done away with and point to examples such as vaccine-maker Moderna, Airbnb, Uber and others that are not consistently profitable, yet got listed. “Look at Airbnb, which went through the IPO despite intermittent quarters of profitability,” said Ram Pathade, founder, Mahagram, a credit services provider to low-income groups.
To be fair, many tech start-ups take a long time to turn profitable and require access to capital on a consistent basis – something which the proposed listing framework has set out to achieve. Some advocate a change in approach or a different set of metrics instead of EBITDA. “The nature of start-ups is such that it may take a few years for start-ups to be profitable. There could be other parameters that can be defined in lieu of profitability that provide equal confidence for investors such as the investment commitment from existing and future investors,” said D Chattanathan, Managing Director of Aryadhan Financial Solutions.
After listing, Airbnb shares ended the day up more than 112 per cent with a market valuation of more than $86 billion. Similarly, Moderna was one of the biggest biotech companies to list even though it was not profitable at that time.
Sharad Sharma, co-founder of iSPIRT Foundation, is of the view that most of these start-ups may have already raised several rounds of equity funding and proven their business model before seeking to raise growth capital for scaling their business. “We can double the number of unicorns from 100 to 200, if the rules are eased,” said Pathade.
Grading system
Some in the industry have mooted a grading system to be followed for listing of start-ups.
“If the listing is happening after 5 years, we think EBITDA requirements could be brought down to say 3 years and the more quicker the start-up lists, the lesser number of years of EBITDA requirement should be mandated,” said Chattanathan.