this story originally appeared in on mar 27 2015 mumbai a new definition separate trading platform and higher entry barrier to discourage risk averse small investors will form the contours of a new set of rules to enable startups to list on stock exchanges capital market regulator sebi which is preparing a discussion paper on the subject will also relax disclosure norms relating to use of funds raised in maiden public stock offering by such companies even though most startups backed by venture capitalists and angel investors are loss making and may not attract too many retail investors the securities and exchange board of india sebi fears that an absence of listing opportunity in india could drive these firms to tap overseas bourses that offer softer regulations and easier listing facilities the regulator plans to define startups where no single stakeholder or interest group holds 25 or more equity stake as professionally managed companies said a person familiar with the discussions most unlisted startups are funded by vcs private equity pe houses and ultra high net worth individuals with founders holding comparatively lower stakes it would greatly help to remove the requirement of having an identified promoter or requiring 20 of postipo shares to be locked up as promoter contribution founders of many startups may not have the necessary shareholding to lock up 20 of postissue capital for three years as that would be diluted with progressive rounds of new investment and the private equity and strategic investors may well hold a larger stake also pe and strategic investors would not want to be named as promoters and carry additional risk and liability said sandip bhagat partner at law firm sr associates issue proceeds startups will also be allowed to state in the initial public offer prospectus that the main object of the issue proceeds would be used for general corporate purposes in line with the best global practices at present sebi rules do not allow a company to use more than 25 of the fresh issue proceeds for general corporate purposes draft offer document could be rejected by the regulator if the fund use description is vague for a major portion of the issue proceeds companies seeking to list in the us have greater flexibility in this respect for instance alibaba raised approximately 8 billion through ipo by simply stating that the proceeds would be spent towards general corporate purposes and pending such use would be invested in shortterm interest bearing debt instruments or bank deposits others such as linkedin stated in ipo prospectus that the purpose of the offering was to increase capitalisation and financial flexibility increase visibility in the marketplace and create a public market for the shares while linkedin could not specify with certainty all of the particular use of proceeds it intended to use the proceeds for general corporate purposes including working capital sales and marketing activities and general and administrative matters and capital expenditures this is the kind of flexibility