How Can a Startup Enter the IPO Market in India? Complete Process, SEBI Rules, and Key Steps

Entering the public market through an Initial Public Offering (IPO) is a milestone for Indian startups. It transitions a private company into a publicly traded entity, providing liquidity to early investors, raising capital for scale, and enhancing market credibility.

However, navigating an IPO in India requires a strict understanding of the Securities and Exchange Board of India (SEBI) (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations), compliance obligations, and financial readiness. This article breaks down the platforms available, regulatory rules, step-by-step procedure, and essential preparation required for a startup to go public.

1. Choosing the Right Listing Platform

Indian startups have three main avenues to list on stock exchanges (NSE and BSE), depending on their market size, growth stage, and financial metrics:

2. SEBI Rules & Eligibility Criteria for Startups

To issue shares to the public on the Mainboard exchange, a startup must qualify under one of two entry routes specified in SEBI ICDR Regulations:

Route 1: Profitability Route (Regulation 6(1))

• Net Tangible Assets: Minimum ₹3 Crore in each of the preceding 3 full years (with not more than 50% held in monetary assets).

• Average Operating Profit: Pre-tax operating profit of at least ₹15 Crore during any 3 of the preceding 5 years.

• Net Worth: Minimum ₹1 Crore in each of the preceding 3 full years.

Route 2: QIB Route / Book-Building Route (Regulation 6(2))

Since many tech startups prioritize market expansion over short-term profitability and cannot meet the profitability criteria of Route 1, SEBI allows them to list via Route 2:

• Institutional Mandate: At least 75% of the net offer to the public must be allocated to Qualified Institutional Buyers (QIBs).

• Refund Requirement: If the startup fails to achieve the 75% QIB subscription, the entire subscription money must be refunded.

Key Mandatory SEBI Compliance Rules

1. Dematerialization: 100% of the pre-IPO shareholding held by promoters, promoter groups, directors, KMPs, and selling shareholders must be in dematerialized form before filing the offer document.

2. Promoter Lock-In Period:

   • Minimum Promoter Contribution: Promoters must hold at least 20% of the post-issue capital, which is locked in for 18 months (or 5 years for SME listings).

   • Excess Shareholding: Any promoter holding above 20% is locked in for 6 months.

   • Pre-IPO Shareholders: Shares held by pre-IPO non-promoter investors (e.g., VCs, PEs) carry a 6-month lock-in period from the date of allotment.

3. Corporate Governance:

   • Appointment of an Independent Board (at least one woman director and 33%–50% independent directors depending on board chairmanship).

   • Statutory Committees: Audit Committee, Nomination & Remuneration Committee, Stakeholders Relationship Committee, and Risk Management Committee.

3. Step-by-Step IPO Process for an Indian Startup

The journey from a private startup to a listed company typically spans 6 to 12 months.

[1. Internal Preparation & Board Resolution]
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[2. Appointment of Lead Merchant Bankers (BRLMs)]
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[3. Due Diligence & DRHP Drafting]
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[4. SEBI Filing & Public Comments (21 Days)]
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[5. SEBI Observations & RHP Filing with RoC]
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[6. Marketing, Roadshows & Price Band Declaration]
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[7. IPO Bidding Window (3–5 Days)]
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[8. Basis of Allotment, Credit of Shares & Trading]

Step 1: Internal Financial & Legal Preparation

• Convert the entity from a Private Limited Company to a Public Limited Company.

• Restructure the capital base and convert outstanding convertible instruments (CCPS, CCDs) into equity shares.

• Establish internal financial control (IFC) frameworks and align accounting standards with Indian Accounting Standards (Ind AS).

Step 2: Appointment of Intermediaries

• Book Running Lead Managers (BRLMs) / Merchant Bankers: Lead the valuation, prospectus drafting, and market positioning.

• Legal Counsel: Domestic and international legal advisors perform legal due diligence.

• Registrars to the Issue (RTA) & Syndicate Brokers: Manage bidding networks, allotment execution, and share transfers.

Step 3: Drafting and Filing the DRHP

• The startup and its advisors prepare the Draft Red Herring Prospectus (DRHP). The DRHP covers business model dynamics, risk factors, financial statements, promoter backgrounds, and the intended use of proceeds.

• The DRHP is submitted to SEBI and stock exchanges (NSE/BSE), and made public for at least 21 days to receive public comments.

Step 4: SEBI Review & Regulatory Approval

• SEBI reviews the DRHP, requests clarifications, and issues its observations.

• Once all observations are addressed, the company files the updated document—the Red Herring Prospectus (RHP)—with the Registrar of Companies (RoC).

Step 5: Roadshows, Valuation, and Price Band Determination

• The management team conducts institutional investor roadshows to gauge market demand.

• In consultation with the BRLMs, the startup sets the Price Band (floor price and cap price) and issue dates.

Step 6: Public Issue Bidding Window

• The IPO subscription window opens for 3 to 5 working days.

• Bids are submitted electronically via ASBA (Application Supported by Blocked Amount) through bank accounts or UPI mandates.

Step 7: Allotment, Refunds, and Listing

• BRLMs and the RTA finalize the basis of allotment.

• Unallotted funds are unblocked, allotted shares are credited to investors' demat accounts, and trading commences on the stock exchange (typically on T+3 settlement timeline).

4. Key Challenges for Startups Going Public

1. Path to Profitability vs. Growth: Public markets in India traditionally favor positive cash flows and visible earnings over pure user-growth metrics. High-burning startups must provide clear guidance toward profitability.

2. Promoter Definition Complexities: In professionally managed, VC-backed startups without a traditional "promoter," identifying individuals for promoter lock-in obligations requires careful legal structuring.

3. Price Volatility & Disclosure Mandates: Going public exposes startups to quarterly earnings pressure, strict insider trading rules, continuous material disclosures, and market sentiment fluctuations.

Conclusion

An IPO is not merely a fundraising event; it is a fundamental shift in corporate governance, compliance standards, and transparency. For Indian startups, selecting the appropriate listing route—whether Mainboard via QIB participation, SME listing, or IGP—allows tailored access to capital markets. By prioritizing pre-IPO governance, clean financial auditing, and strategic investor communication, founders can successfully transition their ventures into sustainable, publicly listed enterprises.