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Lobby group roots for extended voting power for startup founders post IPO

The founders should have differential voting rights for two decades as opposed to five years recommended by SEBI, IndiaTech proposed

May 7, 2019 by The Passage Team
Lobby group roots for extended voting power for startup founders post IPO

IndiaTech, a lobby group backed by Ola’s Bhavish Aggarwal and MakeMyTrip’s Deep Kalra, is pushing to get government approval for startup founders to exercise control over their companies for a longer period after going public.

The founders and promoters should have differential voting rights for two decades as opposed to five years recommended by Securities & Exchange Board of India (SEBI), IndiaTech has proposed.

In February, the industry group representing the founders of India’s top internet companies has urged the government to implement a dual-class share structure along with differential voting rights for founder-promoters of startups after IPO. The dual-class share structure, followed in companies like Facebook, Google as well as other global majors Ford and Berkshire Hathaway, gives promoters and founders above par voting rights, irrespective of their stakes.

A month later, the market regulator came up with a white paper on differential voting rights (DVR) with a sunset clause, capping DVR period to five years after listing. According to a report in Times of India, the PMO also sought recommendations from all stakeholders and held a meeting on the issue in April.

IndiaTech is now seeking the sunset period to be at least 15 years, extendable by another five years subject to shareholders' approval.

“A period of 15-20 years after an IPO is significant for the growth of the company, in terms of operations, maintaining profitability, best serving its investors, and ensuring stability in management,” said IndiaTech chief executive Ramesh Kailasam, according to an Economic Times report. “Therefore, a sunset period of five years would not be appropriate, especially for high-growth technology companies.”

IndiaTech is also pushing for SEBI to exempt the promoters of India’s high-growth tech companies from complying with the minimum promoters’ contribution requirement, which is currently set at 20% of post-issue capital.

“Practically, when high-growth startups reach a critical mass, the promoter holding anywhere in the world usually stands below 20%,” Kailasam said.

The Passage Team

The Passage is committed to creating in-depth content over technology industry across Asia with a focus on emerging startups in the technology, healthcare, education, food, tech, travel & mobility segments.

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