How to raise funds through an SME exchange platform?

1. Fundraising through
SME Exchange Platform

2.  SME fund raising stages
 SME Exchange..the chronicle
 The blocked mindset
challenge
 Benefits of listing
 General tax benefits
 Criteria for listing
 Other criteria
 Listing procedure
 Getting prepared for listing
 Role of merchant banker
Merchant bankers’ role in
market making
SME exchange...benefits over
main board
 Corporate Governance Issue
 Hostile takeover
 Stages of IPO
 Listing timelines
 Institutional Trading Platform
Presentation Structure

3. SME fund raising stages...
Revenue
Development Stage
Pre Seed Phase > Seed Phase > Start-up Phase > Emerging Growth >
Development
Promoters Funding
Venture Capital/Private
Equity
SME IPO
Migrate to main Board

4. SME Exchange..the chronicle
 January 2010 – The Prime Minister’s Task Force recommended to
set-up dedicated Stock Exchanges/Platform for SME .
 To facilitate the same , the market regulator SEBI made significant
amendments in the SEBI (ICDR) regulations, 2009 . Subsequently
SEBI also amended the following Regulations in order to facilitate the
SME IPO.
 SEBI (Merchant Bankers) Regulations, 1992;
 SEBI (Foreign Institutional Investors) Regulations, 1995;
 SEBI (Venture Capital Funds) Regulations, 1996;
 SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations; and
 SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992
Cont..

5. The blocked mindset challenge..
Mindset of ‘me rather we’
Small and medium companies still have the mindset of ‘me rather we or Company” . This concept needs to change. It
is recommended to think universal while going to public
Equity dilution – fear on loss of control
Despite having solid growth potential, the managements of privately-held SMEs often remain wedded to the status quo
and are wary of new management perspectives and fresh growth capital. Their fears on loss of control and equity
continue to dominate strategic decision-making.
Focus needs to be changed from..
Governing to governance
Ownership to sharing
Tax savings to tax paying
Owners to all stakeholders; ultimately stake holders are the most important par of any organization and they are to be
paid back positively.
Focus should be on wealth creation for all
It is transformation of promoters, preparedness for transparency, shared decision making and compliance.

6. Benefits of listing
Help to raise the required
funds for -
 Business Expansion
 Geographical Expansion
 Diversification
 Acquisition
Infusion of equity will help
company to raise borrowed
debts at efficient rate; which
is also required for the
expansion
Fund raising through
exchange will balance
company’s leverage
structure leading to
healthier balance sheet
Listing will also help to
generate an independent
valuation of the company by
the market
Listing will raise company’s
public profile with
customers, suppliers,
investors, financial
institutions and the media
Once listed on SME
Exchange, a company can
anytime migrate to the main
Board of BSE/NSE
provided shareholders
approval is accorded
Cont..

7. General tax benefits...
Zero long term capital gain tax/limited short term capital gain tax
In general, transfer of unlisted shares attracts long term capital gain at the rate of 20%.
While a company is listed in SME exchange, the same rate is ‘Nil’. The same unlisted
transaction attracts a short term capital gain tax upto 30%. In case of SME exchange, the
same has been reduced to 15%. However STT is applicable on listed securities.
Zero tax on distress business purchase
Acquisition of distress asset, where value is less than its book value, could attract heavy
tax. However such a tax liability does not attract if company’s shares are listed on a
recognized stock exchanges including SME Exchange.
Zero tax on fresh equity infusion
Compared to unlisted company, fresh issuance of equity shares in listed company does
not attract equity infusion tax even the issuance is made at a value more than the fair
value.

8. Criteria for listing..
Requirements
1. Post Issue paid up capital - has to be less than Rs 2500 Lakh
2. Track record has to be more than 3 years
3. EBDT - should be positive for at least 2 preceding years
4. Net worth -should be positive for at least 2 preceding years
5. BIFR
Should not be reported
6 Winding up petition
Should not have any such case
7. Regulatory / disciplinary action by any regulator - past 3 years Should not have any
such case

9. Other criteria...
 Minimum number of members for Issue - 50
 Market making by merchant banker- mandatory for 3 years
 Underwriting - 100% (Merchant bankers to underwrite 15% in own
account)
 The company shall mandatorily facilitate trading in demat securities
and enter into an agreement with both the depositories
 Companies shall mandatorily have a website
 No change in promoters in preceding one year from the date of filling
the application of listing
 The minimum application size in IPO in terms of no. of specified
securities and trading lot size shall not be less than Rs. 1,00,000.

10. Listing procedure...
Selection of
Merchant
Banker
Structuring of
Capital and
Valuations
Due Diligence &
Pre-IPO
preparation
Preparation of
Offer Document
Appointment of
other
intermediaries
Marketing
Strategy
Filling of Offer
Document
with Stock
Exchange &
Others
Issue Launch/
Allocation
Listing/Post
listing activities/
Market Making

11. Getting prepared for listing...
Important disclosures/documents requirements
 Audited annual accounts
 Peer review by a Chartered Accountant firm
 Appointment of full time company secretary
 Appointment of 50% independent directors into the board
 Due diligence on the applicability of various Regulations
 Disclosure about – risk factor/external environment/ litigation/ business
activities/others
 Objects of the issue and issue structure
 Future plan and strategy
 Management discussion and analysis of the financial results

12. Role of merchant banker...
Assisting company regarding regulatory aspect of the issue
A merchant banker informs and shares company about capital market rules & regulations, the IPO process and post
listing requirements.
Due diligence & DRHP Preparation
Merchant banker would be closely associated in preparing the new applicant's prospectus and other related listing
documents. Merchant banker conducts a due diligence on the applicant and provide due diligence certificate as per
Form A of Schedule VI of the ICDR including additional confirmations as provided in Form H of Schedule VI along with
the offer document to the exchange.
Display of offer document on website
Merchant bankers display the offer document on its website after the final approval is obtained and the RHP is filed
with RoC and SEBI
Market making arrangement
Merchant bankers ensure compulsory market making through the stock brokers of SME exchange in the manner
specified by the Board in chapter XB, for a minimum period of three years from the date of listing of specified
securities on SME exchange.
Underwriting arrangement
Merchant bankers ensure that the issue is 100% underwritten and 15% of the underwriting should be by the merchant
banker in own books.
Arrangement with nominated investors
In terms of provisions of Chapter XB of the ICDR, Merchant Banker could enter into arrangements with nominated
investors (PE funds & QIBs as defined therein) for facilitating market making and underwriting. Merchant bankers
disclose its arrangements with Nominated investors to the exchange in the Final Offer document.

13. Merchant bankers’ role in market making...
Merchant bankers to the issue undertake market making through a stock broker who is
registered as market maker with the NSE Emerge Platform
Merchant bankers are responsible for market making for a minimum period of 3 years
Market Maker provide two way quotes for 75% of the time in a day. The same shall be
monitored by the exchange
Other information related to market making: Maximum number of market maker is limited to 5 and they can compete
with each other. The exchange shall prescribe the minimum spread between the bid and ask price. Marker maker can
de-register itself by giving one month’s notice.
Restriction/limitation:
 Market maker shall not buy shares from promoters or persons belonging to the promoter group
for any person who has accepted shares from such promoter or promoter group during the
compulsory market making period.
 Promoter cannot offer their holdings to the market maker during the compulsory market making
period, however promoters holding which is not locked-in can be traded with prior permission of
the SME exchange in manner specified by SEBI.
 Takeover regulations are not applicable to the market maker for a period of three years from the
date of listing.

14. SME exchange...benefits over main board..
Lower time frame for listing
In SME Exchange getting listed takes less time compare to listing on main board
Limited number of allotees
In main board of BSE and NSE the minimum number of allotees is 1000 where as in the SME exchange the same
requirement is only 50.
Display of offer document on website
A merchant banker displays the offer document on its website after the final approval is obtained and the RHP is filed
with RoC and SEBI
Relaxation on post issue capital
In the SME exchange the post issue capital requirement is any amount less than Rs. 25 crore where as in the main
board the minimum post issue capital requirement is Rs. 10 crore.
Limited intervention by the market regulator SEBI
In SME platform, the exchange plays pivotal role under observation of SEBI, where as in the main board SEBI plays
much broader role. Reporting requirements are also limited in SME exchange compared to main board.
Migration to main board
Once listed on SME platform, a company can migrate to the main board at any point of time after two years of listing
(after fulfilling certain conditions)
Which exchange? SME Exchange Main BoardSME or Main Board
Rs. 1-10 crore Rs. 10-25 crore Above Rs. 25 crorePost issue paid-up capital

15. Corporate Governance
 Companies Act, 2013
 Listing Agreement applicable for SMEs
 Exchange listing norms
 SEBI ICDR Regulations
 SEBI other regulations like SAST, Insider Trading
Statutory compliance management and minimum
Corporate Governance practices to be followed in
perspective of the following Rules/ Regulations

16. Corporate Governance
 Board of Directors should be comprised of optimum
combination of executive and director with not less than 50%
of directors comprising of non-executive directors. If the
Chairman is an executive director or belongs to promoter
group, half of the Board should comprise of independent
directors.
 Audit Committee shall have minimum three members, all
being non-executive directors, with the majority of them being
independent, and with at least one director having financial
and accounting knowledge.
 The audit committee shall meet four times in a year. One
meeting shall be held before finalization of annual accounts.
Norms for listed companies

17. Corporate Governance
 Related party transactions
 Disclosure of accounting treatment
 Risk management
 Remuneration & shareholders related disclosures
Disclosures
Annual CEO/CFO certification to board
 Review of financial statements
 Accepts responsibility for internal controls
 Intimation to auditor and audit committee regarding significant
changes, instance of fraud etc

18. Corporate Governance
 Company shall submit Half Yearly Results (Audit/ Limited
Review) and Half Yearly Shareholding pattern
 Annual report shall contain a separate section containing the
corporate governance report
Report on corporate governance
Compliance certificate
 Company shall obtain a certificate from Auditors of the
Company or Practicing Company Secretary regarding
compliance of conditions of corporate governance

19. Post Listing Threats & Takeovers
 Compliance with Listing Agreement.
 Compliance with SEBI Insider Trading Regulations.
 Compliance with other SEBI Regulations and SCRA.
 SEBI (Substantial Acquisition of Shares & Takeovers)
Regulations, 2011
 Creeping acquisitions.
 Compulsory and voluntary open offer.

20. Stage – I : Conception & Capital Structuring
Assist in preparing for IPO and listing on SME Exchange towards:
 Advising appropriate capital structuring
 Statutory compliance management & effective corporate governance
practices
 Appointment of market intermediaries and other parties like
Underwriters
Market Makers
Registrar to the Issue
Bankers to Issue
PR Agency, Printer, etc.
 Devising a complete IPO plan and strategy including the likely post-issue
shareholding pattern

21. Stage – II : Due Diligence & DRHP preparation
Drafting of Offer Document and other important agreements,
documents and resolutions necessary for an SME IPO. An
indicative list is as follows:
 IPO Offer Document
 Tripartite Agreement with NSDL, CDSL and Registrar to the Issue
 Underwriting Agreement
 Market Making Agreement
 Agreement with Bankers/ Registrar to the Issue
 Board/ Shareholders Resolution
 Certificates, Declaration, Letters of Representations etc.
 Forms / Applications to be filed with SE, ROC and other Regulatory Office
Due Diligence spans the entire IPO process. The broader steps
involved in due diligence exercise:
 Decision on Public Issue
 Business due diligence
 Legal & Financial due diligence
 Due diligence on the applicability of various Regulations
 Disclosures in Prospectus

22. Stage – III : Offer Management
Under this stage following activity will be done considering drafting
of Offer Document and other important agreements, documents
and resolutions etc.
 Filing of IPO Offer Document with SE, SEBI & ROC
 Follow-up with SE and ROC for their approvals
 Assistance in launch of IPO and coordinate with other parties including PR
Agency, printers for adequate advertisement, application forms as required
statutorily
 Discussion and meeting with the informed investors, Institutions, PEs, VCs, etc.
Monitoring the flow of applications and keeping a real-time discussion with the
management of the Issuer Company
Coordinating with bankers and registrars for deposit of application money and
finalisation of allotment list in consultation with stock exchange.

23. Stage – IV : Post IPO
Under this stage towards listing of equity shares, our role shall
include the following.
 Assistance in completing allotment of shares to the successful allotees.
 Preparing listing application
 Filing of listing application with Stock Exchange (SE)
 Follow-up with SE and obtain listing approval
 Assist in trading formalities and obtain SE trading approval
 Assist in making required public disclosures required statutorily
 Coordinating for continuous market making for 3 years

24. Listing timeline..
Sr. No. Procedure Timeline
1 Conversion of Company into Public Limited Company, if applicable X
2 Preparation of Documents for conversion and submission to ROC for approval i.e. Alteration of
Memorandum, Articles & filing of necessary forms for appointment of aforesaid directors
X+5
3 ROC approval accorded for conversion X+7
4 Identification & appointment of Registrar & Transfer Agents & Submission of Master Creation
forms with NSDL, CDSL for establishing connectivity
X+7
5 Appointment of Managing Director, Whole Time Director, Independent Directors, Company
Secretary & deciding about their remuneration, sitting fees etc.
X+12
6 Constitution of committees - Audit, Shareholder Grievance, Remuneration etc. As per SME
Listing Agreement
X+15
7 Preparation of website of the Company & hosting code of conduct on the website X+18
8 Signing of Tri-Partite Agreement with NSDL & CDSL and receipt of ISIN X+18
9 Identification & appointment of peer review auditors & getting the financials of last 5 years
restated and for last 1 year re-audited from peer review auditors as per SEBI (ICDR)
Regulations, 2009
X+18
10 Appointment of Merchant Banker & Market Maker X+18
Cont..

25. Listing timeline..
Sr. No. Procedure Timeline
11 Preparation of Project Report and Red Herring Prospectus (RHP) X+35
12 Filing of Red Herring Prospectus (RHP) with stock exchange & SEBI (only for hosting) along
with application for in-principle approval with stock exchange
X+35
13 Clearance from stock exchange X+65
14 Filing of Red Herring Prospectus (RHP) with ROC & getting it cleared from ROC X+70
15 Filing of Final Prospectus with Stock exchange and SEBI X+75
16 Opening of the Issue X+80
17 Closing of the Issue X+83
18 Allotment of shares X+90
19 Filing of listing application with Stock exchange X+93
20 Receipt of listing approval from Stock exchange X+95
21 Filing of corporate action form with NSDL & CDSL and demat credit of shares X+96
22 Filing of trading application with Stock exchange X+98
23 Receipt of trading approval from Stock exchange X+100

26. Institutional Trading Platform (ITP)..
 A trading platform for early stage venture to list with or without IPO.
 Limited lock in of promoter's capital (only 6 months vs 3 yrs in IPO).
 Limited disclosure requirement.
 Can migrate to main board after 3 years.
 Restricted for HNIs and Institutional Investors.

27. ITP-Eligibility
For Tech, IT, Bio-tech, Nano-Tech,
Analytic and Intellectual Property –
at least 25% of the pre issue
capital with Qualified Institutional
Investors.
Any other entity - 50% pre issue
capital with Qualified Institutional
Investors.
No person, individually or
collectively with PAC, shall hold 25%
or more of the post issue share
capital
No profit/turnover requirement

28. Relaxation
No profit trach record required Flexible issue price justification
Offer proceeds can be used for
general purpose
Migration to Main Board after 3
years

29. ITP - Disclosure requirements
Only for Listing
 Filing of Draft Information Document with SEBI for approval along
with fees.
 In-principal approval from the recognised stock exchange.
 Disclosure related to issue pricing.
 To list within 30 days after SEBI approval.
For IPO
 DRHP filing to SEBI with specified fees.
 Minimum application – Rs. 10 Lacs
 Number of Allottees - to be more than 200
 Allocation – 75% to Institutional Investors & 25% to Non-
institutional.
 Allotment – Discretionary up to 10% of the Issue Size to one
Institutional Investor or proportionate to any level & proportionate
to Non-institutional Investor

30. ITP – Lock in and exit options
Lock in
Entire pre-issue capital of the shareholders shall be locked-in for a period of 6
months from the date of listing with following relaxation:
• ESOP/ESOS
• Shares purchase by VC, foreign VC, alternative investment fund – whose
investment is locked in for a period of at-least one year from the date of
purchase.
• Equity shares held by persons other than promoters, continuously for a
period of at least 1one year prior to the date of listing in case listing with
public issue.
Exit Option
• Special resolution by postal ballot where 90% of the total votes and the
majority of non-promoter votes have been cast in favour of such proposal.
• Exchange permission.

31. Thank You