"Market regulator SEBI sets sights on the booming PE, VC funding of startups. From valuation methodology to the valuation ‘manager’ SEBI is seeking answers from the hottest ecosystem that is now facing a funding winter. Host Arijit Barman talks to Sugata Ghosh, Associate Editor The Economic Times, Pratibha Jain, Head of Strategy and Group General Counsel at Everstone Group and Tushar Aggarwal, Founder and CEO at Stashfin.

Credits: WION, MoneyControl, NDTV, CNBC-TV18, Business Today, ET NOW"

This is an audio transcript of The Morning Brief podcast episode: SEBI's Brush with Upstart Valuations

BG Sound 0:01

This is the morning brief from the economic times.

Arijit Barman 0:17
The stock market regulator is seeking transparency in valuation of startups. Earlier this month. It reached out to several top venture capitalists, private equity funds to share details on valuation methods, the credentials of the valuer disclosure standards and potential conflicts of interests, a move that has raised eyebrows and hackles across the investing community.

Sugata Ghosh 0:47
Well, it takes me back 15 years ago, when a lot of changes happened in the mutual fund industry. And at that point, there was a lot of hue and cry that SEBI was micromanaging. It would stifle the mutual fund industry. But we all know it didn't happen. A lot of money is going into the alternative funds, that is the private equity the venture capital funds, because you have this wealthy set of investors who feel that the stock market is overvalued, so why not look for the multibagger in unlisted stocks in the hidden stories, which the private equity or the venture capital managers are in a better place to spot than them, so they're putting money. So if you compare the two cumulative investments between June 2021 and 22, it's up by around 80 to 90,000 crore. So it's a growing industry. It's an evolving industry. So regulator doesn't want to take its eyes off the sector. And to be fair to SEBI, SEBI at the moment is only collecting information. It has not taken any harsh steps or clamped down on any fun, it is just collecting information, possibly to understand whether the rules of the game are right.

Arijit Barman 2:00
That's my senior colleague Sugata Ghosh who keeps a close tab on such key regulatory issues involving the financial markets. But before we get down to the why nows and what next, it's important to set the context here. Now we all know success has many fathers.

BG Sound 2:22
The unicon ecosystem saw a lot of new entries, Byju's is not just India's most valuable startup, but also the world's most valued edtech startup. And the healthy run for Indian startups continues Tata, one mg now the 22nd unicorn in the year 2022, which takes the total number of startups in India over a 107.

Arijit Barman 2:47
As we became the third largest ecosystem for New Age tech startups globally, some of the big disruptors went from big to bigger. Some even tapped the Indian capital markets with mega IPOs

BG Sound 3:05
Paytm listing on Dalal Street opening at a share price of 1955 rupees to a share versus the offer price of 2150 per share. Food tech major Zomato has delivered a piping hot listing making it Dalal Street debut at 116 rupees a share. That's a 53% premium. Over the issue price the seller listing has helped the company enter the coveted club of companies that have a market cap of over one lakh crore rupees. Nykaa had a blockbuster debut today with its market cap crossing one lakh crore rupees, the stock listing at a premium of 82% as compared to the issue price of 1125 rupees.

Arijit Barman 3:52
Remember, I quoted a famous saying about success? Well, I didn't complete the sentence there. success surely has many fathers, but failure, none. So when tech stocks started melting, hell did freeze over for many of the freshly minted public stock of the startup fraternity in India, bloodbath in the listed space, also implied private valuations plummeting, and an unprecedented funding squeeze.

BG Sound 4:26
So Zomato reported its q1 fy 22 numbers, the losses of the company this time has widened both on a quarter on quarter basis as well as on a year on year basis. Nyka. its parent company came out with his earnings over the weekend and what we have seen is a big decline in the net profit. Now the startup universe has seen heightened deal activity and maximum transactions over the last few years. But now the tide is turning and a downward cycle has actually begun liquidity constraint was and is the biggest factor for the rise and Fall of the New Age companies. The anticipation of a funding winter is what startup is staring at. And the cracks are already visible on the ground.

Arijit Barman 5:16
It's Friday 16th of September, from the economic times. I'm your host Arijit Barman, you're listening to SEBI's brush with upstart valuations. This is the morning brief.

Arijit Barman 5:39
But why the heightened scrutiny all of a sudden?

Sugata Ghosh 5:43
Well I'd say a combination of factors. Yes, the dismal performance on listing is certainly one of the things which SEBI can't ignore. Another thing as you said, the size of the AIF industry has grown and thirdly, you have a new SEBI chief who was earlier as wholetime member looking after private equity and venture capital funds. Now, SEBI has no jurisdiction over unlisted companies. Technically, SEBI cannot say what should be the valuation of an unlisted company but SEBI regulates the AIFs and investors are putting a lot of money into AIFs. Now if these investors tomorrow, just wake up and say that look, we were all taken up the garden path we were not given the right deal and as regulators What were you doing now, they may not be as many as mutual fund investors, they may be larger investors bigger investors putting in 50 lakh one crore, but still you can't ignore

Arijit Barman 6:37
correct

Sugata Ghosh 6:37
If they are given a raw deal. So both the fund managers are learning the IPO meltdown, as you said was a learning experience. The reluctance of auditors to sign any balance sheet is another telling story. So just like the fund managers, the investors too are learning and it's an evolving story. Most of the AIFs are close ended funds where the NAV is published every six months. In certain cases, if the investors give their consent, the NAV can be published once a year. So a lot of things depend on the fund house, the fund manager, the administrator, what are they doing so there is a lot of element of trust and SEBI as regulator may want to see whether the trust is being breached in any way.

Arijit Barman 7:21
SEBI may well be trying to raise the disclosure bar to minimize risks for investors. But the world of venture capital thrives on taking puns. As they say you spray and then pray that out of the 10 wagers you make one or at best two will rake in all the moolah, the remaining eight will fail. So venture investing ain't for the faint hearted in the first place. Questioning that very essence might just turn out to be counterproductive.

Sugata Ghosh 7:56
True, true, but then that is an exact comparison of how the market exists in the West. That may not be a fair comparison, because our mutual fund industry itself has really taken off in the last 15 - 20 years Right?

Arijit Barman 8:12
Correct

Sugata Ghosh 8:13
Before 20 years, how many people invested in SIPS and other things. So compared to that AIF is still a fledgling industry when it is grown fast and it is still growing. So it is good to check whether the rules are right whether we have the right routes,

Arijit Barman 8:27
right.

Sugata Ghosh 8:28
So this kind of actions, this kind of data collection would possibly kind of lend themselves to certain criticism of micromanagement. But then we are in a position to criticize SEBI only if it acts only if it comes out with regulations which are too stifling. So, so far, it hasn't happened. Correct. So it's a wait and watch.

Arijit Barman 8:49
But why this obsession also about the origin of the AIFs who controls the AIF? It's almost like you're trying to lift up some kind of a corporate veil. Is there something that we are missing here? That's SEBI is trying to actually address.

Sugata Ghosh 9:07
So, look, private equity at one point was largely foreign private equity right. To help the growth of the local private equity private venture capital, the AIF regime came about that was 2012 and the regulation scheme. Now, AIF regime is allows formation of private equity venture capital funds in India, where that fund will have a manager will have a sponsor, who has to give him five crore and the trustee in fact 99% of the money can come from foreign investors, there is no rule that stops a local private equity guy from doing it. But when a private equity investment happens, that is in local AIF invest money downstream, buys equity of an Indian company, it is considered as a local investment

Arijit Barman 9:55
right

Sugata Ghosh 9:55
it is not considered as an FDI. But to make that happen SEBI wants that the manager has to be a Desi manager, in the sense, they see control that is locally controlled. So manager is not an individual manager is an LLP or a firm

Arijit Barman 10:10
right

Sugata Ghosh 10:11
So now say 60% or 51% of that firm, if it is controlled by NRIs or by foreigners. In that case, SEBI can say, Look, guys, you are kind of sidestepping the regulations, we are bypassing the regulation because the manager is foreign, because if AIFs have to be FDI compliant, then they will have to look at all if they have to fulfill all FDI rules. So, there are a lot of do's and don'ts of FDI. So, AIFs are spared from that on the condition that your manager has to be locally controlled. your sponsor has to be a local business and if you have not done that either one was ill advised or it was like a bit of of a attitude towards investment because SEBI wasnt too focused on this part of the market and there are funds who have gone about doing it where a large banking group would be the sponsor or the manager which have set up a local AIF here but it did not quite ensure that it was investment its downstream investment were FDA compliant. Now, today if SEBI finds out that FDI norms were breached in some of these investments, it boils down to a violation of FDI regulations and famer. But what is surprising is that these are questions which normally RBI asks, which is not typically SEBI domain, but SEBI has just asked them to disclose.

Arijit Barman 11:39
Valuations go up and valuations come down. Sometimes it's greed that drives it. Sometimes arrogance gets added to the mix. Often, it's just external macro economic headwinds, wars, energy shocks, inflation that become an avalanche. We have seen this movie play out several times over from the tech boom to bust of the early 2000s to the global financial crisis of 2008 to the more recent IL&FS blowout, but what are the key triggers for the meltdown of the tech stocks around the world? This time around? I asked a former Lehman Brothers investment banker, turned FinTech entrepreneur to Shara Agarwal, this question Tushar runs Stashfin, a neobank, as its founder and CEO that has raised its last round of capital, just this June.

Arijit Barman 12:39
Okay, I'll come back to you to find out what's different this time around. But Pratiha, over the years, you've seen AIF's grow and become a very big it's no longer a fledgling setup in India, it is a fast growing space. How has the evolution been so far?

Pratibha Jain 13:28
You know, I've literally seen the AIF market evolve in India from the initial regulations in 2012. I think to you know, where we are now. And

Arijit Barman 13:42
Its been a decade, yeah,

Pratibha Jain 13:43
yeah. And, you know, was luckily part of both the drafting the evolution of the regulation. Initially, the way it was set up, we had to even explain to the government what a trust is, you know to enable them to allow trust. It was set up as because India didn't have a funds industry, and you had Singapore and Mauritius funds being set up, instead of having them onshore. So they are losing out on jobs capital tax, thankfully, the government took cognizance of it and they have regulations came in place.

Arijit Barman 14:19
That's Pratibha Jain, co head Regulatory Affairs Committee at Indian Venture Capital Association IVCA, the most influential industry body for private equity and venture capital players that operate in the country. Pratibha is also the head of strategy at everstone group, a Singapore headquartered PE firm with a large India portfolio.

Tushar Aggarwal 12:39
I think all four of them, at least from my vantage from different The first one is probably driven a lot by hoopers. Second one driven by somewhat by Wall Street Ness less by Main Street, ILFS One i think was a very local to India, maybe not didn't have any Global, or underpinnings in it. And I think what we're seeing now is sort of combination of all three, some numerous, some sort of global kind of trends playing out especially in the commodities and interest rate cycles, and the currencies are depreciating as well.

Pratibha Jain 14:44
Now you have private equity and infrastructure and you know all alternative classes being registered here. And what really drove that industry to grow was that they were very light touch regulation, and recognizing you need that kind of flexibility because funds are very bespoke structures, the rights you negotiate between your investors and with the investi companies, in our case, for our topic, startups are going to vary significantly depending on the deal, depending on its size, depending on this the stage the company is in, and the size of your fun and your investor. So I think thing evolves, its regulations have gone through a lot of changes. And you know, just in the recent few years, there's been spate of new compliances that have been put in play, and also easing of some of the provisions mainly because earlier, it was seen as a big boy play. Now we're seeing more and more retail products being introduced. And don't get me wrong, you're not this will never get as listed markets, or even mutual funds, like minimum ticket sizes here. So you're still talking big boy play, but compared to institutions coming in now, HNIs have started investing in AIFs for investing in startups. You know, the standard legal idiom of caveat emptor, which is buyers beware should totally apply, you know, they should have knowledge of what they're getting into. So that's that's where the noise is coming from, because you're seeing more HNIs invest.

Arijit Barman 16:23
And is that the reason why suddenly we see or it seems that there is a heightened scrutiny? Because they are an influential lot. They're smaller in numbers, but far more influential than retail investors.

Pratibha Jain 16:35
No, you're absolutely right. Right, influential is the right word. The reason that high net worth individuals is that make their mark in society, I've worked half my life in other financial centers like New York, Tokyo, Hong Kong, before coming back to India. And Ive seen these cycles play out in those markets, also where valuations are going to go up and valuations are going to come down depending on how much capital is chasing what deals right that that's a normal cycle. In India, the creation of unicorns like Tushar's NBFC is a relatively new phenomena. And it has attracted relatively for the first time these investors who have not gone through the cycle. And remember, part of it is it's not just the valuation, there's always the valuation game and Tushar can explain to you, but from a lawyer's perspective, from what we're seeing, this is as much a governance issue at the startup as a valuation issue, what started bursting of the bubbles was really all that money got raised. But there was not enough time or enough focus on the governance which started bursting the bubble.

Tushar Aggarwal 17:47
But my take on this is a little bit like I would say, a little bit more different, I think I would say one of those is obviously what you characterize, which is that, you know, people who are wealthy, they want to have a seat on the table, They want to have a point of view, and they want to be heard, and therefore there is a debate going on. But also I feel partly macro economically, India's also moving ahead from being a goat versus being a tiger. Earlier, we were okay with sort of thing happening globally, just kind of accepted like a meek, kinda, animal, goat living is the right sample. But now, I want to hear their view, if I want to share the view. And I think India is different Indians, the challenges, the opportunities are very different. So I partly also feel the confidence the industry, or the stakeholders have perhaps SEBI or the people where they're saying, Look, you know, it may be okay that you have these no question asked policy on other markets. But by the way, we are different. And there's a very good reason why we're different, because the opportunity over here are very, very different. The risks are very different. The people who can get hurt, the people who can make a lot of money are very different. I'm actually very excited why this debate is happening because it shows to me at least the level of confidence, our regulator the stakeholders are having in our maturing ecosystem. True.

Pratibha Jain 18:56
So you know, Tushare, and I know Tushar well is kind of new to the regulatory regime. Our regulators have always been diverse. We're had a dearth of strong regulators, weathers RBI or SEBI always said, we are different from the rest of the world they've never shied away from In fact, you know, we have regulations, we had regulations in case for products, when no, where else they existed, and people started borrowing it, you know, from the Indian markets. So I don't think it was for a lack of confidence among the regulators, in the case of AIFs it's just deepening of the market of investors that we are looking at,

Arijit Barman 19:42
what are those gaps that need to be plugged in you feel Tushar?

Arijit Barman 19:47
That so many boom bust stories? I think people will be very curious to know what is going on.

Pratibha Jain 19:54
Right, like, think of thinking, think of yourself in Silicon Valley, right? It's not that, you know, companies there haven't failed. If you compare India to the Silicon Valley, and if we started regulating valuations in the US, would they have been able to grow the market the way they are?

Tushar Aggarwal 20:13
Absolutely not. I look, and like I said, I'm not suggesting that there should be more regulation or less regulation. What I'm saying is that I can see the reason why people are very curious. And they should be taking around a little bit more. Yeah. So I mean, look, I mean, I think as you pointed out earlier, in the discussion, there is a lot happening globally, some people are getting hurt, they've lost some money, some people are made some money, maybe not a lot compared to what they had in mind. I think in general our disclosures around investing in riskier businesses is lesser than I would like to see, for example, when I was an investment banker at Goldman Sachs and Lehman Brothers, I remember even back in the day, it was very, very clear sort of guidelines on who you would pitch a deal to, if you were pitching the deal to the standard, our theme was generally a little higher. And it wasn't so much for the regulation set. But I think the the ecosystem was much more mature, you weren't sort of pitching it to people who are pensioners, you weren't pitching early stage businesses, people who needed the money. I personally feel that that is not the case over here. I'm an angel investor. And I don't think in the debates when we have with the groups I work with, and there's some very talented people, by the way, in that group there, there is enough sort of debate on the risks involved, people can lose money, usually the concept are very nice entrepreneurs are happy, the investors are happy, the bankers are happy, people are really very happy. That's good. But I don't think it's been discussed enough that look, guys, this could be about zero in a couple of months or in years. I think that will be one area where I feel like you know, maybe there could be something more discussion around the topic. And I don't mean legally or sort of something is missing in the law, just having a more frank and honest chat on those topics.

Arijit Barman 21:45
So everybody wants to come into the party, but nobody wants to talk about the hangover. But Pratibha, you you think that we already are over regulated, and we are treading on very, very thin ice.

Pratibha Jain 21:58
But I wont say we are over regulated, I think we are well regulated with the AIF regulations. You haven't seen, you know, significant issues coming out of the industry. So I don't mind, you know, having more disclosure around how valuation has been done. For example, who are you using for valuation? Are there any conflicts, that kind of disclosure? I think disclosure phase machines are very good, right? Maybe you change the ticket size. But if we ended up creating limitations on valuations, you know, there's certain markets like the bond market never recovered from, you know, the initial set of regulations that didn't work and now been trying now for at least a decade, I can remember to find solutions. And we've just not found it, what Sebi ends up doing because of these limitations and taking preventive moves, SEBI ends up restricting the market from growth.

Arijit Barman 22:59
Let's address the nub of the issue here. Which is, how do you value New Age internet and tech companies, most of them do not have a track record of profits, they're still at their growth phase. So are still burning cash to gain market and wallet share. Since they do not have much of a history, valuation of startups has to inevitably rely on what these companies could become tomorrow, or day after or five years down the line, and not necessarily on what they are today. And since they operate in relatively uncharted terrain, they face a unique set of risks that could alter the very nature of their business, as well as existence.

Tushar Aggarwal 23:49
Yeah, look, I mean, there are broadly two broad methodologies people use one is what we call comparable company analysis, which is if you think that a pile of apples in one cart is worth X rupees the pile of apples in another cart is worth something similar. That's sort of one way and that's fortunately unfortunately the global way of how to quicken 30 math kind of works. The second is more fundamental where you can say something like okay, look, let me go top down or bottoms up top down means you start with the industry, how many people live in a country etcetra etcetra, the target market, and bottoms up is a little bit more sort of more granular. And you say, Okay, this is what the business can be. with some assumptions over a period of time, which is like literally called fundamental analysis, and then you kind of take a view of what things will be in the future and you kind of discount it back to the present value. And there's different techniques like a DCF, etc, around it to get to the point of view. I think, early stage business investing isn't any different these two methodologies, which typically drive values. And then the third element, which brings value to earlier was supply and demand. So sometimes all this goes for a task because there's just so much supply and there is very little demand therefore things just go up in price, which is a market sort of forces determining value, but these three would be I would characterize will represent maybe 90%, of how businesses get value.

Arijit Barman 25:10
So you're saying that you rely on benchmarks that are already there, which are applied on mature companies, things like future cash flows, price to book, gross written premiums when it comes to FinTech companies, which are into insurance, etc, as the base. And then on top of that you add a stack of optionalites you know, as the X Factor, gross margins, etc, and then you arrive at multiples

Tushar Aggarwal 25:38
Thats right? So the multiples could be derived in the case, which is example, which you mentioned, which is that you take something and you put some bells and whistles to it, to figure out what's going to be worth in a couple of years, and then you kind of discount it back divided by the price that you're paying, and you derive the multiple, or you kind of say, Well, look, this kind of business, which looks very similar to mine has these kind of multiples on revenue, gross margin and free cash flow, number of customers other metrics, like earnings, and you say, Okay, let me apply these multiples to another business I'm looking at. So one way it can be more fundamental that you derive the multiple based on some assumptions, and the second way is more comparable to other companies.

Arijit Barman 26:17
But would you agree that it's that much more difficult to actually do that looking at valuing early stage companies, because you're valuing them for who they will become or potentially become tomorrow day after or seven years down the line, and not for who they are today? So basically, it's a punt on future, and there are therefore that much more imponderables.

Tushar Aggarwal 26:42
Absolutely, look, and you know, like I say, sometimes we will, most people would not be able to predict with a very high degree of certainty, what we'll have for lunch tomorrow let alone project, predicting what the weather will be five years from now, that means you said it its a punt on what will be in the future, and you're sort of making educated punts or guesses on how that will be arrived, I think the one piece which is on the balance people get wrong is that most people probably underestimate what they will do in 10 years, but they overestimate what they do in one year. So sometimes in a linear thinking approach in Excel, it's not very easy to kind of come out with a business or a set of entrepreneurs can do, you know, in a decade or so. But as you said, it's very hard, it's very hard to do. So if it's a very high degree of accuracy.

Arijit Barman 27:22
It's not so much the valuation, you know, which is causing this debate or the scrutiny, it is the fomo among fund managers, and you know, the speed at which they were deploying capital. And somewhere along the way, they just forgot to do the basic checks and balances. And now that you know, the tables have turned, you know, the party has come to an abrupt halt, there are skeletons that are coming out to tumbling out of the closet, so to speak.

Pratibha Jain 27:53
Yeah, I mean, I agree that it's a combination, definitely of a few factors, right? One is, of course, the hotness of the market, when the market is all heated up. And there's, especially post COVID, there was a lot of money to be deployed. And even during actually, during COVID, we've seen the liquidity in the market that we hadn't seen for a while, and then there is a pressure to deploy that liquidity, right. So you know, that's a very important factor that we can't take out of the equation and that you can't regulate for, you know, you can't create a funnel for Okay, this money this much liquidity will come in was very happy for that, for liquidity to come into the Indian markets and create all these unicorns and create these jobs. You don't then question becomes what do you do from here? Because the big worry, which is very legitimate is it might be a big boy to big boy play sophisticated investors are investing people wanting money, experience of setup good businesses, so why can we just let them play the game? I guess the important question becomes and what people are worried about job losses, the unicorns created extraordinary amount of jobs in the Indian market, and rightfully, the government and the regulator would want to ensure that there is not an upheaval there. But I don't think regulating valuations at this stage is going to help that cause I think what will help there is the focus on governance, which is now happening, but again, you go back to an important piece missing missing in the markets, which is the credit market you know, you're completely then reliant on foreign funding because you just can't get bank loans. There's just no methods available locally so i think population of liquidity and governance can see us through this turbulent times some will die. That's market.

Arijit Barman 29:54
That's that's yeah, that's markets. Yeah. Tushar, You've raised funds recently, the melt down of tech stock who had already happened. And it was progressively from becoming bad to worse to a full bloodbath. How did that impact your capital raising Initiatives?

Tushar Aggarwal 30:12
Yeah, sort of certainly the macro environment played a part in how the round get caught price and also what the sides are armed with. But look, I want to just go back to one point that you brought up earlier, I think the discussion is a lot about sort of the investors but I also feel, you know, you can't keep the entrepreneurs out of the equation, the value or it's an ecosystem. And yeah, the one piece which is a little technical, but I think your EQ audience will really appreciate this. And they probably already know this is that a lot of investors when they come in, they also have certain preferred, right. So that means is that if you value a business high, very high enough, let's say, and it's not as high as it should be, the next round of fundraising investor typically gains or does not lose money, but the entrepreneur does, that's on balance. I'm oversimplifying, some, for anti dilution and Pratibha can be much more eloquent than I am in this topic. So I think a look, a lot of times when you were out of India, and I was raising money, you would say no to capital, which is perhaps just coming at a higher price, because you do know that you have to justify the price, maybe the next round of fundraising or you blew the business certain way. And the macro environment had sort of two parts to play in our ways. One of them is our own sort of our characterized fear or lack of certainty, because when the world is sort of melting around, you're also thinking, well, is that going to happen in India? Should we sort of worry about tempting our growth projections can be higher than anything we will be hiring. So therefore, there's an element of internal circumcision about what we're going to be doing or not and how well we can perform. And the second part, as I said, is, you know, some sort of some kind of expectation setting with the investors as well.

Arijit Barman 31:45
SEBI is also asking for details like qualification of the valuer. Whether the valuer hired is an associate of the fund or its manager or a sponsor. And if there was a significant change in the valuation matrix or the methodology in the past three years, among other things, that's micromanagement isn't it?

Pratibha Jain 32:08
I am okay with asking for details of the valuer. That's disclosure to me. You need to be very careful when you start going into valuation methodologies and any changes that the valuer has undertaken? Because as Tushar was mentioning, if you if you hear it's an art, it's not a science.

Arijit Barman 32:30
Yeah. Yeah.

Pratibha Jain 32:31
So the way I am valuing today would be based on the assumptions and the facts that are present, you know, pre-investing versus, you know, three years after investing. For the second round was going to be totally different. Any factual disclosure on you know, the value is not an associate with the fund manager. I'm okay with right that shouldn't be the case there should be no such conflicts. And having said that overall approach for me for this category for the fund management industry in India, which is competing with the global industry, right, so capital should be light touch. It is light touch globally. I think it's very importantly, we balance the need for regulations versus the need for this capital for the growth of the startups and the economy

Arijit Barman 33:26
My take. SEBI's scrutiny of practices involved in arriving at startup valuations may lead to consistency. It's a fact that fund managers suffering from FOMO have been lax, and many looked the other way, as long as the gravy train continued running. Just two examples to highlight what I'm saying. Most VCs in private conversations will tell you about a leading ed tech company that didn't allow any independent due diligence to any investor and gave out only sketchy financial details. At best. Nobody cared for all this while nobody balked as valuations vaulted today, the same ed tech companies losses have searched 17 times. Another hotshot Health Tech saw its valuation soar 400% Within seven months, and it raised $700 million across two funding rounds between April and October of last year. Today, the same company's valuation is down by half. The list is long as one governance lapse follows another audit delay, while another founder loses his mind and gets shunted out of his company. regulatory efforts to bring in some consistency should be A welcome move. But as we discussed, it may be harder to come by, for startups than for companies in established businesses, where the path to profitability is better defined. So SEBI has to be judicious and avoid silly regulations, else it will choke the golden goose, once and for all, and kill the spirit of entrepreneurship and hamper India's image as a sought after investment destination for startup capital. And as for startup IPOs and the lessons learned from the recent post listing carnage, I want to leave you with just one thought for companies that want to go public, but do not have a proven track record of profits for safe three to four years. How about allowing them to only raise new money to fund growth just allow promoters founders, existing shareholders from selling shares in the secondary market? Once post listing the price stabilizes the lock ins expire. Allow them to sell as well. But not before you have been listening to SEBI's brush with upstart valuations with me, your host Arijit Barman.

Arijit Barman 36:22
This episode was produced by Vinay Joshi, Sound Editor, Rajas Naik Executive producers, Anupria Bahadur and yours truly do like and share the episode on your social media handles and spread the word. The morning brief drops every Tuesday Thursdays and Friday. You can listen to us on Spotify, Amazon Prime music, Apple podcasts and jiosaavn as well as the economic times.com/podcast and by tuning into et play.com Our latest offering all external sound clips used in this episode belong to the respective owners. Credits are mentioned in the description. Have a great weekend. Goodbye and good luck.

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