SEBI increases scrutiny on disclosure of KPIs by startups planning IPOs: Exclusive
May 9, 2024
Sources suggest that the market regulator seeks more information from startups that were shared with investors, creates concern on key performance indicators that need to be disclosed in DRHP.
Market regulator SEBI is tightening the noose on the disclosures made by IPO-bound startups in their DRHP filings, several sources with direct knowledge shared with CNBC-TV18.
FirstCry had to re-file its DRHP as the market regulator asked for more KPI (Key Performance Indicator) disclosures which had been shared with its investors while raising private funding over the last three years.
A source on condition of anonymity said, “It’s not just FirstCry, SEBI has tightened scrutiny on all IPO filings. The impact is more on the new age space where the investor concentration is very high and SEBI wants them to disclose much more information than what are considered KPIs by the companies.”
Uncertainty in identifying the accurate KPIs and what are the important metrics of performance has caused concern amongst the startups and their investors.
How much to share?
Industry experts share with CNBC-TV18 that all the information given to the investors in private rounds need not be relevant for investors for an IPO.
“Aggregate metrics are shared in the DRHP while the PE/VC are given granular details. The private investors are sophisticated investors but the same is unlikely to apply for a public listing," an investment banker shared.
Another industry expert shared, “The regulator had stated that KPIs shared with investors over the last three years should be disclosed in DRHP but the KPI was at the discretion of the issuer according to industry standards, this aspect has changed considerably due to the recent events.”
Competitive Edge
Many companies are also worried that not all information shared with investors are key metrics but are useful information which cannot be shared publicly.
An industry expert said, "Companies will lose their competitive and strategic edge if all the data is disclosed. A retailer will not want to reveal its per-store performance data with a competitor but may share that with an investor for several reasons."
Investor Sentiment
Sources also point out that this issue is creating friction between the startups and their investors as the flow of information is getting restricted due to the current concern.
Startups planning for an IPO in the near term have become cautious and have reduced the information shared with the investors.
A global investor in several startups in India shared on condition of anonymity, that the matter of identifying KPIs has created “massive confusion.” Source pointed out that, globally, these are standardised and suggested to “take a leaf out of that playbook.”
Experts suggest that this may hinder investment flow into the startup space, if not addressed immediately.
Complex IPO Process
The confusion on identifying KPIs is challenging according to several industry sources which include PE/VC investors, i-bankers, lawyers and startups. Companies can opt to leave out some performance indicators by giving a reason for the same, a source pointed out. Another source said, "If the market regulator has sector experts as dealing officers the process can be eased to resolve the confusion across different sectors of the tech-driven space."
While the industry is looking for a solution and standardisation of a clear framework with regard to KPI disclosures, many believe that in the meantime the return of startup IPOs will be delayed and the process of receiving a SEBI clearance will get complex.
Queries directed to SEBI and First Cry yielded no response.
[CNBC TV18]
