Jan 14, 2000|
Venture Capital Funding set to get a big boost with SEBI relaxing norms
The dot.com industry is set to hit the initial public offering market with the Securities Exchange Board of India (SEBI) exempting venture capital (VC)-funded companies from the requirement of a three-year track record of profitability.
This will provide a big boost to the VC funds who will have an exit option far sooner than they could have anticipated. Also it could lead companies which do not have a three-year track record of profits but needed funds to tap VCs instead of going to brokerage houses/high net worth clients. This in turn will provide a big boost to the VC industry and lead to bigger industrial houses setting up venture capital funds to fund start ups.
In effect, VCs have been given a defacto vetting authority. Obviously the thinking in regulatory circles seems to be that the VCs do their due diligence before they fund the start ups.
This however would make it imperative for banks and financial institutions to set up their own venture capital outfits, which would have different norms for funding than the traditional banking business which fund on the basis of the value of the assets that the business already possesses.
Another important implication of the decision is that the dot.com companies would have an option to list on the Indian bourses rather than just look for a Nasdaq listing. It could also improve the market capitalisation in the markets itself if the valuations that dot.com companies receive on the American bourses are any indication.
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