In its board meeting on Thursday, market regulator Securities and Exchange Board of India (Sebi) approved a new framework for issuing differential voting right (DVR) shares by tech companies.
This move will allow startup founders to have a greater control over their ventures even after diluting a significant portion of their holdings, while raising multiple rounds of equity financing. This will also make the process easier for promoters of such companies to go in for an IPO.
Sebi chairman Ajay Tyagi said the new framework is applicable only for tech companies, which Sebi defines as per its ‘innovators growth platform’ norms, as those which intensively use technology, information technology, intellectual property, data analytics, biotechnology or nano-technology to provide products, services or business platforms with substantial value addition.
Ride hailing company Ola’s Bhavish Aggarwal, who recently tried to take greater control of his company by reworking founder’s rights, tweeted on Thursday evening: “Welcome Sebi’s move to allow Differential Voting Rights for Indian tech companies. I’m certain this will encourage Indian companies to list within the country, backed by our own people. Made in India businesses and entrepreneurs can control their destiny and build for the world!”
Aggarwal, along with Deep Kalra, the group chief executive of Nasdaq-listed MakeMyTrip and Flipkart founder Sachin Bansal, have been backing IndiaTech, an advocacy group that has been lobbying with the government on various issues, including DVR.
Rameesh Kailasam, chief executive of IndiaTech, told Economic Times, “This is, conceptually, a big win. For the first time, it is being acknowledged that the broader technology sector needs to have DVRs.”
However, Sebi has set conditions: The superior voting rights (SR) shareholder shall be part of the promoter group with a collective net worth not exceeding Rs 500 crore. While determining the collective net worth, the investment of SR shareholders in the shares of the issuer company shall not be considered.
It further said the SR shares shall be issued only to the promoters or founders who hold an executive position and the same should be authorised by a special Annual General Meeting (AGM) resolution.
This would mean that SR shares be held for at least six months prior to the IPO filing. The regulator also said SR shares have voting rights in a ratio of minimum 2:1 to maximum 10:1 compared to ordinary equity shares.