Sebi board to discuss ESOP retention for startup founders: what it means for IPOs

Sebi is set to deliberate new norms allowing startup founders to retain employee stock options post-IPO, potentially reshaping founder incentives and startup valuations. This move follows proposals on PSU delisting, highlighting Sebi's broader agenda to refine market regulations.

Sources:
The Indian Express
Updated 1h ago
Tab background
Sources: The Indian Express
The Securities and Exchange Board of India (Sebi) board is poised to deliberate on a significant proposal allowing startup founders, classified as promoters, to retain and exercise Employee Stock Ownership Plans (ESOPs) granted at least one year before their companies' initial public offerings (IPOs).

This initiative targets new-age tech companies, aiming to bolster founder retention and incentivize long-term commitment during the critical IPO phase. The move comes amid Sebi's broader focus on market structure reforms, including a separate carve-out mechanism for voluntary delisting of Public Sector Undertakings (PSUs) where government shareholding exceeds 90%.

"The Sebi board may also consider the proposal to allow founders of new-age tech companies, or startups, planning to launch , and who are classified as promotor or promoter group in the draft offer document, to continue to hold, exercise or avail ESOPs granted one year before the company undertakes ."

Sebi's draft paper highlighted challenges faced by some PSUs, such as thin public float and poor financials, prompting discussions on delisting criteria. Successful delisting requires promoter shareholding, combined with public tendered shares, to reach 90% of total issued shares.

"The Sebi board is likely to create a separate carve out mechanism for voluntary delisting for PSU, where the government9s shareholding equals to exceed 90 per cent of the total issued shares, according to market participants."

By enabling startup founders to retain ESOPs, Sebi aims to align interests of promoters and investors, potentially enhancing IPO attractiveness and post-listing stability. This regulatory evolution reflects Sebi's adaptive approach to India's dynamic startup ecosystem and capital markets.
Sources: The Indian Express
The Sebi board is set to discuss allowing startup founders classified as promoters to retain and exercise ESOPs granted one year before their companies' IPOs. This move aims to support new-age tech firms amid ongoing talks on voluntary delisting and public float concerns for PSUs.
Section 1 background
Key Facts
  • The Sebi board is likely to create a separate carve out mechanism for voluntary delisting for PSUs where the government’s shareholding equals or exceeds 90 per cent of the total issued shares.The Indian Express
  • In a draft paper, Sebi identified some PSUs have thin public float and poor financials despite profitability.The Indian Express
  • Delisting of a company is considered successful if the post-offer shareholding of the promoter or promoter group along with shares tendered by public shareholders reaches 90 per cent of total issued shares.The Indian Express
  • The Sebi board may consider allowing founders of new-age tech companies or startups to retain ESOPs granted one year before the company goes public if they are classified as promoter or promoter group in the draft offer document.The Indian Express
The Sebi board may also consider the proposal to allow founders of new-age tech companies, or startups, planning to launch , and who are classified as promotor or promoter group in the draft offer document, to continue to hold, exercise or avail ESOPs granted one year before the company undertakes .
The Indian Express
The Indian Express
Key Stats at a Glance
Government shareholding threshold for PSU delisting
90 per cent
The Indian Express
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