The News of Internet initial public offering (IPO) is in the air. Some of the well-acknowledged unicorns, such as Flipkart, PolicyBazaar, Zomato, Ola, Freshworks, PepperFry, Nykka and Delhivery are all at various phases of finalising their plans. As per a report of HSBC Global Research, India has invested more than $60 billion in the internet segment in the last five years. The investment was around $12 billion in 2020 alone. According to a research company, Tracxn, there were 34 unicorns in India since February.

Despite that, there is a demoting scenario with this. Most of the Indian start-ups are unprofitable. The loss-making companies are in trouble and finding difficulty to list on Indian bourses. Securities and Exchange Board of India (Sebi) has made rules that cause obscurity for the firms to get listed on National Stock Exchange (NSE) and BSE. Along with this, Indian start-ups which are listed in Singapore or affiliated with a holding company of the country, could not list in India.

So, investors and C-suite executives realised that the Indian public market may not be in the support of the raised valuations of enterprise capital-backed internet business. Within the internet space, growth and market size, which is known as “potential”, are appraised higher than monetary flow and benefits in the matter of valuing a business. In the US, the case is different. There public markets are affluent and investors are normally well informed into tech and regulations, which are way more complicated.

This is a kind of problem for India. There must a portion of the potential tech IPOs be lost to Nasdaq, Indian investors subsidize lose billions of dollars in wealth creation, and, so do other intermediaries like fund managers who gain from IPO-related work. For a period of two years, Indian exchanges and Sebi are encouraging tech start-ups. Lately, they have also initiated an independent exchange and simplified certain requirements to make it more striking.

To which platform to be listed requires a smart analysis. The decision needs to be made with a lot of factors. The article dissolves the key listing requirements in India, in the US and the likelihood in a few other scenarios.

Getting listed in India: NSE, BSE                                

The possibilities to listing on the regular exchanges are NSE and BSE– or listing on the newly created Innovator Growth Platform (IGP).

Usual listing is the ideal way. At present, Sebi's Issue of Capital and Disclosure Requirements (ICDR) regulations allow only profit-making companies to list on the stock market. The rule says that they need to show pre-tax profit of at least Rs 15 crore a year in three of the former five years. This significant rule conks out most of the Indian tech-start-ups.

However, there is a stipulation. If non-beneficiary start-ups need to go for a listing, they must propose 75 per cent of their net public offer to only qualified institutional buyers (QIBs), including insurance, mutual fund firms, and alternative investment funds. And only 25 per cent of the proposal can be subscribed by retail investors, together with high-networth individuals (HNIs). This is observed as a disadvantage.

Some of the other regulations are also needed to be noted. There is a need for minimal promoter involvement. Promoters of a firm functioning public must essentially enclose 20 per cent of their post-IPO shareholding for a period of three years after listing.

In 2019, Sebi had drafted an independent platform called IGP to fascinate tech-start-ups with more easygoing regulations. From March of 2020, the rules were additionally eased. To get listed on IGP, a company requires a 25 per cent pre-issue of its capital to be held for at least two years by institutional investors. Sebi has relieved this requirement to just one year. It has further added that open offer for IGP-listed entities will be triggered at 49 share acquirement, contrasted with 26 per cent earlier, and it has even brought delisting requirements easier. The consequence is that IGP has not seen any listing until now.

Getting listed on Nasdaq

There are four ways through which a company can be listed on the Nasdaq. These are based on its underlying fundamental. It should comply with one of the subsequent situations.

Situation 1: The entity must have joint earnings of $11 million in three former years and no single year should be a net-loss year.

Situation 2: The entity has got a combined monetary flow of at least $27.5 million in the past three years, with no negative cash flow. Additionally, its average market capitalisation in the past 12 months must be at least $550 million, and revenues in the previous fiscal year must be at least $110 million.

Situation 3: Entities can skip the cash flow necessity if their average market capitalisation in the past 12 months is a minimum of $850 million and revenues in the previous financial year are at least $90 million.

Situation 4: In a case, where entities’ assets are of total of $80 million and their stockholders' equity is at least $55 million, they can skip the above needs and reduce their capitalisation to $160 million.

It is mandatory for a company, for being listed on the Nasdaq, to complete at least one of the above-mentioned situations, or risk being delisted. The fact that Nasdaq has such diverse requirements permits it to cheer a varied set of firms to come for an IPO.

MakeMyTrip and Yatra.com have taken this route and had successful stretches in the US markets. The rules of Sebi also allow Indian companies another route, which is the dual-listing method. Indian firms listed on Indian bourses be able to list their shares via American Depository Receipts or Global Depository Receipts (ADR and GDR) on Nasdaq. Chief companies like Infosys, HDFC Bank and ICICI Bank have occupied this route.

Nasdaq listing through SPAC

SPAC, or Special Purpose Acquisition Company, a vehicle popular in the US, is unable to extract much interest from Indian firms. A SPAC is an established company with the only purpose to acquire private companies from the money it raises from an IPO. In other words, a SPAC will list itself on the exchange and then step towards acquiring other firms and assign its shareholders shares in the acquired entity. The profit here is that it enables companies to access public markets without themselves having to go through the mind-numbing process of an IPO. As per a report, SPACs have raised $38.3 billion in IPOs while the start of 2021, contrasted with $19.8 billion by traditional IPOs.

This is seen as a legal alternative for Indian firms to enter the US markets, a contrast to a direct listing has complications and seems impossible. The exceptional case is that the company should also list in the US. The US SPAC has to register itself as a Foreign Portfolio Investor (FPI) in India and can assist take an Indian firm public. Some of the reports suggest that Indian founders are taking this route into account.

Some knowledge about Singapore-incorporated firms too

It is well known that for tax purposes, there are many Indian companies incorporated in Singapore. The Corporation tax rate in India is 30 per cent, compared with 17 per cent in Singapore, dividend distribution is not taxed there, and sales tax in Singapore is flat 7 per cent, contrasted with 5-28 per cent in India. The major reason is that capital gains tax in Singapore is zero.

That’s why Practo, Grofers and quite a few Indian start-ups are listed in Singapore. This is also why Flipkart moved its holding company to Singapore prior to its deal with Walmart.

Meanwhile, a Singapore-incorporated unit cannot list on Indian exchanges. It can follow a way, either list a part of its business that is accommodated in an India-registered entity, or convey the business to the India entity which gets listed. SPAC listing can be a route too.

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