A few weeks ago, new admission criteria for knowledge-based companies in the capital market were announced by the Stock Exchange Organization. While market participants believe the new resolution brings some improvements compared to the past, the primary obstacle to startups going public still exists—a challenge for which the rationale is also being questioned, and experts provide answers to it.
According to IDEA, More than fifteen months have passed since the initial public offering (IPO) of the first startup on the Iranian stock exchange. While it appeared that TAPSI had broken the IPO barrier, paving the way for other startups, certain obstacles still persist. The issue of ‘competency assessment’ of internet business managers can be considered the primary hurdle to their listing on the stock exchange—a matter that market participants have also emphasized.
Hamid Mohammadi, the CEO of Digikala, recently stated in response to a question about the initial public offering of the company that they are awaiting approval for entry to the stock exchange: ‘Various institutions and authorities need to approve the entry of Digikala and other digital economy businesses into the stock exchange.’
In the final days of the twelfth government, Mohammad Javad Azari Jahromi, the then Minister of Communications, mentioned one of the obstacles to the presence of startups in the stock exchange:
‘Regulations outside the economic domain became entangled with these issues. These regulations were of the kind that if these startups entered, what would be the consequences, we want to prevent these issues from happening. In my opinion, these statements were not accepted and were dragging the country’s economy backward. The bodies overseeing the stock exchange had created restrictions. Even negotiations were held with them, meetings were held with all government agencies, and follow-ups were done. Now I hope that these issues will be resolved in the new government!’
The competency assessment, which is still present in the new regulations, has a limited time frame for a response.
However, if we set this issue aside, the new admission criteria for knowledge-based companies in the capital market have come with positive changes, which we will examine further. However, experts believe that these positive changes may not entirely unravel the knots hindering startup entry into the stock market unless the government can provide more support within the framework of these new laws.
Startups Need Supportive Guidelines for Stock Exchange Listing
Mohammad Khalaj, CEO of Snapp, responded to a question about whether the new regulations help startups go public, saying:
“In my opinion, the new resolution is more about safeguarding the interests of shareholders and investors than helping startup companies enter the stock market. To enable knowledge-based companies to enter the stock exchange, we need comprehensive and supportive guidelines that encompass all the concerns of investors, shareholders, companies, governance, and more.”
He pointed out that the previous resolution by the Stock Exchange Organization was tailored to digital economy professionals, saying, “The most significant difference in the new resolution is that it includes a broader spectrum of knowledge-based companies. This new spectrum encompasses companies in the digital economy, technology, and creativity.”
The CEO of Snapp further noted that many companies in this sector are small and have low profitability, which is why they may lack the interest or capacity to be listed on the stock exchange.
Khalaj believes that in the new resolution, the Admission Committee is transformed into a specialized and dedicated committee, but he thinks this change does not significantly impact the process of startups going public because, “the focus of this committee, which is primarily on technical matters, does not have a substantial influence on the acceptance or qualification conditions of companies in the stock market.
Snapp’s CEO emphasizes that, above all, the company must achieve internal readiness and the necessary maturity for entry into the stock exchange. This process may sometimes require structural, legal, ownership, financial, and other changes: ‘Depending on the extent of the necessary changes, this process can be time-consuming. There are also concerns from the government that need to be addressed.’
Khalaj believes that after internal processes are completed, existing laws can either assist or restrict startups from entering the stock exchange.
New regulations address previous challenges but not all problems
Reza Khanaki, CEO of Azki Sarmayeh, believes that the new regulations, informed by the experience of TAPSI’s acceptance, have been rewritten to address previous issues: ‘The intention was not to draft guidelines to change all the problems related to startups going public.’
He also mentioned the timeframe for responding to inquiries, stating, ‘According to the new regulations, if responses to inquiries are not provided within two months, the acceptance process will continue. However, for TAPSI, this issue had become time-consuming, and the company had pursued it multiple times.’
But why is there a need for competence verification of startup CEOs and boards of directors? Do we see something similar in the general regulations for accepting companies on the stock exchange? Khanki responded to this question by stating:
“Startups currently do not play a significant role in the country’s economy, but their social impact is undeniable. Platforms like Digikala and Snapp have over 40 million users today. For example, a 2-hour disruption in Snapp’s taxi service can affect traffic in several major cities. Therefore, unlike B2B companies, there are concerns about B2C companies.”
The CEO of Azki Sarmayeh emphasized that the spirit underlying the new regulations for accepting startups remains the same as before, and instead of substantive changes, it takes a different form: “Of course, there are some rotations in the new text that are more understandable for market-savvy individuals, making the conditions more favorable.”
He noted that in the previous regulations, the issue of share certification was very strict, saying, “Previously, entrepreneurs, despite IPO shares of the company, had no difference in their conditions because their shares were still collateral; but now the way share certification is written is in a way that, through an agreement with the stock exchange or over-the-counter market, these shares may become tradable. Such a possibility was not feasible in the previous regulations.
The Biggest Hurdle for Startups to Go Public Still Exists
But is the new regulation for accepting knowledge-based companies in the capital market a cure for one of the problems of startups going public? Rouin Samadzadeh, a financial market activist and former manager of TAPSI’s investments, responded to this question by saying that first, you need to identify the pain, and then see if it will be a cure or not.
He considered the most significant obstacle to the listing of the shares of digital economy activists on the stock exchange to be the qualification assessment of the members of the board of directors, CEOs, and major shareholders of startups; a matter that Tepsi has overcome, but is still a challenge for other startups.
Samadzadeh saw the removal of the qualification assessment requirement for shareholders with ownership of more than one percent as a positive improvement, albeit a small one. However, he believes that in the new regulations, the qualification assessment issue is still not as transparent and clear as it should be:
“It should explicitly refer to the criteria for assessment, but in the new text, apart from the ‘money laundering’ issue, it is not clear what other points are being considered for qualification assessment. For example, if the issue of foreign shareholders is a concern, it should be explicitly stated. If only the issue of money laundering is discussed, the qualification assessment is naturally easier, but this has not been precisely specified.”
Referring to the provision that a 2-month period has been considered for responding to inquiries, he considered it a good point because, in the previous regulation, prospective acceptance-seeking companies were left in limbo.”
Digital economy activists emphasize the need to address government concerns, but on the other hand, it seems that the regulator does not pay much attention to the concerns of private sector companies. If it were otherwise, we might have been faced with a regulation that would have garnered more positive views from startups.
As we see in top-tier countries, the issuance of shares of digital economy players on the stock exchange greatly contributes to the country’s economy, a fact that has led technology giants to be among the top 10 companies in the world. Now, if these conditions are not facilitated in Iran, a great opportunity for the country’s economic growth will be missed.
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