Should EBITDA Negative Startups Be Allowed to List in India?

"It is very important that we let start-ups get listed without putting EBITDA positive for three years or whatever is the current criteria," says Gopal Srinivasan, Chairman, TVS Capital Funds. "SEBI transforming IPO rules is the last bastion the start-ups are yet to conquer," he added.

In terms of the speed of exits, what is the size of the opportunity that you see in some of these digitally led players -- read startups -- going forward?
Gopal Srinivasan explained: "It is an interesting question to ask. We have a conversation in the newspapers and various webinars that are going on as to 1) whether the Indian companies should be permitted to list abroad; 2) whether they should be permitted to list abroad without listing in India ever." The argument given is two-fold: one is that large venture capital funds like Sequoia want to get better value and hence listing abroad gets better valuation. You get a NASDAQ listing at 20-30 times revenue and therefore we want to list it abroad. Second, the same listings cannot be done in India because in order to protect retail investors, Sebi doesn’t give permission to EBITDA negative companies to list."
Sebi transforming IPO rules is the last bastion the start-ups are yet to conquer. They have conquered the hearts of Prime Minister Modi, they have conquered the DPIIT’s policy making and there’s a ministry to look after start-ups. They have conquered the heart of venture funds by creating a fund of funds for start up several fund of funds for start-ups. There is a talk of the government announcing that EPFO NPS money will be allowed to be put into a fund of funds for start-ups.
But Sebi is yet to think about allowing tech-driven, fast-growth but still EBITDA negative companies to list. We are all celebrating Moderna but remember Moderna practically has no revenue. It has been losing money all its life but it is a listed company. I traded Moderna stock in the pandemic and made money. So, to me, that is fundamentally the biggest question for Indians. It is very important that we let start-ups get listed without putting EBITDA positive for three years or whatever is the current criteria.

For many years, industry has been recommending that let an accredited investor -- somebody who has got a gross taxable income of more than Rs 50 lakh or Rs 100 lakh for three years in a row -- participate in start-ups in India. Start-ups listing should be mandatory. During the pandemic, in the US, startup IPOs came one after the other. The next one is going to be airbnb which we are also familiar with. Those kind of companies are there in India but they cannot list in India. We should get Sebi policy amendments for Nykaa which I think is a profitable company. There are many which are yet to be profitable. That is the biggest policy challenge that is needed.

If I had to articulate my opinion on the subject, allow high growth start-ups with minimum Rs 500 crore or Rs 1000 crore revenue to list in India, even if they do not have EBITDA and allow a set of investors who can take financial risk of more than a crore of rupees gross taxable income or Rs 50 lakh gross taxable income to participate. Let mutual funds participate. We must see 100-200 unicorns and they must be listed here and we must open the door.
Once the vaccine comes in, would things improve for real estate?
We do not do real estate at all. I would say that working from home will just become one more aspect of business. I really think people will get back to the office pretty fast. The 90