Small and Medium Enterprises (SMEs) have a great scope in today’s market. SMEs are one of the major contributors to a growing economy. With the changing economy, it’s becoming crucial for every SME to think about an IPO (Initial Public Offering) with a good share price as it can provide a huge boost to the enterprise. The Indian SME sector accounted for a total gross value added (GVA) of 25.7 per cent in 2020-21, the share of the SME sector in India’s GVA was 49.5%. The size of this sector is estimated to be $6.55 billion, employing close to 123 million people. Financing these businesses is a huge challenge. And the IPO route is one of the best possible options to raise funds. Let’s understand more about SME IPO.
What is an SME IPO?
A Small and Medium Enterprise or SME is an entrepreneur-managed business organisation, which is based in any developing country. They are smaller than large-scale businesses and are commonly referred to as the “backbone of the economy”. They are the main source of employment in the societies they are found in.
SME IPOs are usually done by companies already listed on an exchange but looking to raise additional funds. The process of going public can be costly and time-consuming, so many SMEs choose to list on a smaller exchange or use a specialised firm to help with the process.
SME IPOs can be a great way to raise capital, but they also come with risks. The most common risk is that the company may not be able to meet the expectations of the public markets and may need to delist or go private again. There is also the risk that the shares may not be attractive to investors and may not be able to generate enough demand to support the price.
Dos and Don’ts of IPO
When it comes to SME IPO in India, there are a few dos and don’ts that entrepreneurs need to keep in mind,
- For starters, it is important to have a detailed business plan ready before approaching potential investors. This will give them a clear idea of your business goals and how you plan on achieving them.
- It is also important to have a solid track record of financial stability and growth. Investors will want to see that your business is capable of sustaining itself in the long run.
- On the other hand, there are a few things that you should avoid doing when it comes to SME IPO in India,
- Do not over-promise your growth prospects. This will only lead to disappointment later and will damage your credibility in the eyes of investors.
- Avoid using complex financial jargon in your pitch to investors. Keep it simple so that they can understand your business plan easily.
- Do not forget your homework on regulatory requirements for SME IPOs in India. This will ensure that your process is smooth and hassle-free.
A step-by-step guide to SME IPO
The process of a small and medium enterprise (SME) initial public offering (IPO) has evolved over the years, with different approaches taken by different countries. In general, the process involves the following steps:
- The company seeking to go public must first prepare a prospectus, which is a document that outlines the company’s business plan, financial situation, and other relevant information.
- The prospectus must then be approved by the relevant regulatory authority.
- Once the prospectus is approved, the company can begin marketing the IPO to potential investors.
- The company will set a price for the shares being offered and then allocate those shares to the investors who have expressed interest.
- Once the shares are allocated, the company will list them on a stock exchange and begin trading.
Benefits of getting your company listed in SME IPO
There are many benefits to getting your company listed in the SME IPO. Below are some,
- It provides greater visibility for your company and can help attract new investors.
- Listing in the SME IPO can help you raise capital more easily and at a lower cost than other methods such as private placement or venture capital.
- Being listed in the SME IPO can help improve your company’s corporate governance and give you access to a pool of potential shareholders.
How does an SME IPO work?
An SME IPO is a type of public offering in which a small or medium-sized enterprise (SME) raises funds by selling shares to the public. This can be done through a traditional IPO, in which the SME sells shares to institutional investors such as banks and hedge funds, or through a direct listing on a stock exchange.
The funds raised through an SME IPO can be used to finance growth initiatives, including expansion, research and development, and acquisitions. An IPO can also help raise the profile of an SME, making it more attractive to customers and partners.
There are several considerations that an SME should take into account before undertaking an IPO, including the costs and regulatory requirements. The decision to go public should also be based on a realistic assessment of the company’s growth prospects and its ability to meet the demands of being a public company.
Eligibility criteria
To be eligible for an SME IPO, there are a few things you need to know first. Most importantly, you need to make sure that your business is eligible.
Your business must have a minimum turnover of Rs. 20 crores in the last fiscal year. Additionally, your business must be at least three years old and profit-making for at least two of those years.
If your business meets these criteria, you may be eligible for an SME IPO. However, it’s always best to speak to a financial advisor or IPO consultant to get expert advice on whether an IPO is right for your business.
Choosing an IPO consultant is a big decision, it will decide the future of your business, so choose wisely. Also, listing your company in an SME IPO is an important decision, you need to have enough understanding of what an IPO is, its process, and eligibility criteria. We hope with the above information, you’re clear about SME IPOs and are confident enough to proceed with the right decision.
