A company can go public even if it is loss-making. The Issue of Capital and Disclosure Requirements (ICDR) Regulations from SEBI provide for two categories of filters for a company which seeks to go public:
A. Primary filter (u/s 5) - If any of the following is true, the company will not be eligible to issue shares to the public:
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Entity/promoter group/directors/selling shareholders are debarred from the capital market
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Promoter/Director of issuer entity is a Promoter/Director of a debarred entity
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Issuer/Promoter/Director is a wilful defaulter
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Promoter/Director is a fugitive economic offender
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Outstanding convertible securities (other than ESOPs) which can be converted to equity after RHP filing date.
B. Secondary Filter (u/s 6(1)) - If any of the following is not true, the issuer has to allot a minimum of 75% of the net offer to QIBs u/s 6(2) (or refund all application money collected):
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Tangible assets of at least 3 crores for each of the last 3 years.
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Minimum average operating profit of 15 crores in the last 3 years.
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Networth of at least 1 crore in the last 3 years
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If the name has been changed in the last year then at least 50% of the revenue comes from the activity indicated in the name.
So, if a start-up can get QIBs (Mutual Funds, AIFs, etc) to back at least 75% of the issue then they can go public even if making losses. Ujjivan Small Finance Bank did not have a history of 3 years, so it had to go public u/s 6(2). Retail Investors had a reservation of 10% in the issue, unlike the usual 35% for issues u/s 6(1).