Indian tech companies want dual-class shares

Author: Karry Lai | Published: 17 Jun 2019

The Securities and Exchange Board of India (Sebi) is considering allowing domestic businesses to issue shares with differentiated voting rights (DVRs). This is a much-needed move for both startup companies at risk of hostile takeovers, and businesses with founders who want to raise funds without losing too much control.

India’s e-commerce revenues alone are expected to grow from $39 billion in 2017 to $120 billion in 2020. According to Rameesh Kailasam, CEO at Indiatech, the business model of these companies – as seen in other jurisdictions such as the US and China – is primarily focused on growing revenue or gross merchandise value to rapidly scale the business in the initial years, rather than generating profits.

To achieve this, these companies undergo multiple rounds of capital infusion in the early stages of their business, mainly from foreign investors, that lead to significant dilution of ownership. While these companies may attract equity...