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Hope for startups to raise funds from public
AHSAN HABIB and MAHMUDUL HASAN
Startups are now quite thrilled at the likelihood of being allowed to raise funds from the stock market as the Bangladesh Securities and Exchange Commission (BSEC) is mulling over listing loss-making IT or e-commerce platforms.
At present, a company needs to register profits in two consecutive years before it can raise funds from the SME board, according to the securities rules.
Shaikh Shamsuddin Ahmed, a BSEC commissioner, told The Daily Star that he believed the IT and e-commerce platforms needed the funds early and once their survival was ensured, they could go on to earn a lot.
“So, they deserve a different way of valuation, rather than one based on profit,” he said.
Executives of different tech-based startups said it was the most opportune moment for the platforms to get the greenlight of the stock market regulator since people were more prone to purchase goods and services through digital means.
“Startups will grow bigger in the near future and they now need funds,” AKM Fahim Mashroor, chief executive officer of Bdjobs.com and AjkerDeal, told The Daily Star.
“So, if the BSEC allows the listing of such firms, it would play a pivotal role in propelling the growth further.”
Although these companies are not making a profit now, they should be given the opportunity considering their high growth potential, the entrepreneur said.
In order to raise funds through the book building method, a company needs to show profits in the preceding two years. In the fixed price method, no loss-making company is allowed to raise funds.
“The profitability condition has to be relaxed,” said Mashroor.
Besides, individual investors should be given the opportunity to invest in startups getting listed, he said, pointing out that general investors were not allowed to trade on the SME board.
India was already allowing loss-making startups with high growth potential to go public, he added.
Tech startups like Zomato, Paytm, Nykaa and PB Fintech have stormed the market, raising a combined total of more than 38,000 crore rupees, according to a report of the Times of India.
However, the key characteristic that differentiates most of these tech firms from other firms launching IPOs is that they were incurring losses.
For instance, Zomato, Paytm, and PB Fintech reported losses of 356 crore, 381 crore and 110 crore rupees respectively for the quarter that ended in June 2021.
Global iconic tech ventures, such as Tesla and Amazon, were also not profitable for many years.
Ahmed of the BSEC is also aware of the nature of the startups. He said these companies cannot generate revenue right from the moment they start running, so they should not be evaluated based on profits but rather on potential.
“We want to assess their potentials considering the future because many of the world’s top companies like Microsoft incurred losses for several years in their early period. But they are now among the top profit-making companies in the world,” he said.
IT and e-commerce-based companies take time to make profits but assessments are risky tasks, said Ahmed.
“It is a reality that a few people could try to misuse the process but we do not want to block the fundraising process for the rest,” he said.
Because the future lies in IT-based companies, he said, adding that these companies comparatively fared better during the pandemic while others suffered.
“Definitely, we are taking it as a positive development,” said Waseem Alim, CEO of Chaldal.com, an online supermarket that saw dizzying growth amidst the pandemic.
It will be good if the stock market regulator takes opinions from experts and early-stage startup investment facilitators before finalising any decision, he said.
“A few years back, it was difficult to get funds from local venture capital investors, but now many are coming forward. It will create more scope for the firms to get local funds if they are allowed into the stock market.”
The commission was scheduled to sit with some top executives of the country on January 31 but that was postponed due to the emergence of the Omicron variant of the coronavirus, according to sources.
Ershad Hossain, managing director of City Bank Capital, a merchant bank, said there was no methodology for listing startups, but time has come to formulate one as the sector was flourishing.