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Amid Startups IPO Frenzy, SEBI proposed cumulative 35% cap on use of proceeds

Given the growing number of startups going public, the Securities and Exchange Board of India (SEBI) proposed a slew of changes in a discussion paper released on November 16.

The market regulator has proposed capping IPO proceeds set aside for future acquisitions without naming specific targets. In the draught offer documents, issuer companies are currently limited to allocating 25% of the funds to "fund inorganic growth activities." These include new business initiatives and partnerships that do not have a specific target or acquisition in mind.

Furthermore, in the absence of significant shareholders within startups, the market regulator has proposed that only investors with more than a 20% stake in the company be able to sell through OFS. It has also stated that >50% of the anchor book will be given to investors who agree to a lock-in period of 90 days or longer in order to instil confidence in retail investors in loss-making companies.

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