SME IPO : A Dream Come True for Small Businesses

If you have a small or medium-sized business, chances are you’ve fantasized about being listed on the stock exchange at some point or the other. For a long time, this idea has remained a fantasy – as SMEs, or Small and Medium Enterprises, do not have the eligibility criteria to enlist on the BSE or NSE. And we all know the one of the biggest challenges for any SME, is access to capital.

Well, there’s wonderful news in the air for SME owners today.

It has become globally recognized that small and medium business are the backbone of economic development in any country. The need to support small businesses has become essential and vital to economies across the world.

That’s why all major capital markets have realized the necessity for creating dedicated exchanges for the SME segment. More than 20 countries today operate SME Exchanges, and the BSE and NSE have now followed suit.

SMEs can now use a dedicated platform to list on the BSE or NSE, and later migrate to the main board without making an initial public offering. SME IPOs now provide a listing opportunity for small and medium businesses with low compliance and costs compared to the main board.

Thanks to the work of the SEBI and the Prime Minister’s Task Force in January 2010 on Micro, Small and Medium Enterprises, the SME Exchange is now a dedicated trading platform for small and medium businesses, providing an alternate asset class for investors.

Being able to list is a godsend for many small businesses, because it raises the company’s public profile with suppliers, investors and customers, along with giving it a media presence.

Traditional exchange vs SME exchange: what’s the difference?

The BSE and NSE have a strict eligibility criteria, which normally prevents most small or medium businesses from enlisting on what is known as the main board.

For the BSE and NSE’s SME Exchange, the criteria is a lot less stringent, and allowing of circumstances.
For example, the post-issue paid-up capital required by the main board is no less than Rs. 100,000,000, whereas for SME exchanges it is now Rs. 25,000,000.

The minimum application value for traditional NSE or BSE is Rs. 100,000, whereas it is Rs. 10,000-14,000 for SME exchanges.

The global difference

Across the world, the IPO market has been seeing the entrance of new and interesting e-commerce, social media and IT companies, whereas in India, even successful start-ups such as Flipkart, Snapdeal or Paytm have had to settle for private equity investors.

Many of these companies, including Flipkart, began to register on global markets. Koovs was the first company to resister on AIM, a sub-market of the London Stock Exchange, while Flipkart is registered in Singapore and is now a part of Walmart.

SEBI was concerned that upcoming and promising Indian companies would then totally bypass Indian investors in favour of foreign ones.

And so in 2018, SEBI announced the dedicated SME platform. The platform has proved successful for many companies, and there are currently 5000 companies listed on the BSE SME Exchange, and 1600 on the NSE Emerge platform.

We think this is truly promising news for the world of start-ups – finally giving many fascinating and promising companies the leg-up they truly needed in order to achieve global success.

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