On the other hand, a startup with no accumulated losses can apply for a book-building method despite its losses in the past financial year.
Bangladeshi startups, deprived of the opportunity to go public due to their business model for scaling up before profitability, will be allowed to raise capital from the stock market, according to changes in the Public Issue Rules planned by the securities regulator.
The criteria for no accumulated losses and no net annual loss in the latest financial year will not be applicable for startups applying for an initial public offering (IPO), Bangladesh Securities and Exchange Commission (BSEC) officials told representatives and investors of tech-based companies or startups at a stakeholder consultation meeting on Thursday.
According to the primary plans, startups that have accumulated losses, if that do not exceed 200% of their paid-up capital, can go for fixed-priced IPOs only. Fixed-priced IPOs can be at face value or up to the net asset value per share.
On the other hand, a startup with no accumulated losses can apply for a book-building method despite its losses in the past financial year.
No traditional business is allowed to go public with accumulated losses or annual losses in the immediate past year.
As startups are high-risk, high-reward investments, the regulator plans to keep only 10% of the primary shares for the general public.
Also, the eligible investors’ shares may be locked in for three years, while the pre-IPO alternative investment funds and foreign investors may see a one-year lock in period for their stake.
Not only accommodating startups on the bourses, the securities regulator also eyes a complete overhaul of the public issue rules that govern how companies raise capital from the market.
“The public issue rules 2015 needs modernization as business models and dynamics have evolved a lot in the past one decade,” said BSEC Commissioner Shaikh Shamsuddin Ahmed.
“We aim to democratise the capital market for all types of businesses that need capital, including potential tech-based companies and startups, while also making stakeholders responsible so that the capital market can play its due role in achieving Vision 2041 for a smart and developed Bangladesh,” he said, adding that the regulator might formulate new Public Issue Rules soon.
According to investment bankers, the stringent IPO rules have already weakened the stock market by deterring so many good companies from going public in the past one decade when Indian firms raised around 100 times more capital through IPOs than those in Bangladesh, despite the fact the fact that the Indian economy is not even ten times bigger.
The Bangladeshi stock market is one of the very few that still do not allow startup IPOs, despite the fact that there have already emerged unicorns like bKash and Nagad, while dozens of home-grown startups like Pathao, ShopUp, Chaldal, 10 Minute School, Shikho, Praava, and Truck Lagbe attracted global venture capital investors.
During the global funding winter since the war in Ukraine, most of the startups, despite their brilliant business models, were suffering funding crises as venture capital flow dropped drastically.
Exit opportunities are important for startup investors, and the missing IPOs have been depriving Bangladeshi startups of many potential investments.
Chaldal CEO Waseem Alim told TBS that opening the stock market avenue that helps price discovery and exit of early stage investors would encourage investors home and abroad to invest in potential startups as seen in India and other markets.
According to the BSEC presentation at the stakeholder consultation meeting, fixed-priced IPOs can be at face value as well as up to their net asset value per share, excluding revaluation reserves.
Companies that want to float shares at a premium or discount should follow the book-building method, where eligible institutional investors (EIIs) bid to set a cut-off price that will not be allowed to cross 150% of the indicative price to be fixed as a blend of five valuation methods – asset, earnings, peer average, projected earnings, and return on net worth.
Welcoming the regulatory move to recognise tech-based business models, Venture Capital and Private Equity Association of Bangladesh Chairman Shameem Ahsan said a supportive public market ecosystem would help build a robust startup sector in the country.
Like many others, he stressed the Dutch auction method for book-building IPOs, which would smooth the share distribution process alongside forcing EIIs’ responsible bidding; they have to buy primary shares at the quoted price.
Tech-entrepreneur AKM Fahim Mashroor, founder of BD Jobs, AjkerDeal, and Delivery Tiger, told TBS, “The indicative price setting based on formulas might work for traditional companies’ IPOs. We expect a bona fide market-based pricing of startup companies as eligible investors tend to take calculated risks there.”
The initial plans will go through a series of fine-tunings in consultation with the stakeholders before formulating a draft of the modernised Public Issue Rules, and then it will be up for public opinion, said BSEC Commissioner Shaikh Shamsuddin.
Two of his colleagues told TBS they expect at least one startup IPO this year if the pace of rules reform continues.
