Previously, startup founders classified as promoters faced restrictions on holding and exercising ESOPs post-IPO, which often diluted their incentives. SEBI's June 2025 reform allows founders to retain ESOPs granted at least one year before DRHP filing, even after promoter classification. This policy change is significant because:

- It ensures founders remain motivated and aligned with long-term company performance. - It reduces legal complexities and facilitates cleaner public listings. - Enhances investor confidence by stabilizing promoter shareholding patterns.

This reform is expected to improve startup valuations by maintaining founder commitment and reducing market skepticism about promoter stability.

SEBI's September 2025 revision of the Angel Fund framework introduces several critical changes:

- Investment caps per startup are set between ₹10 lakh and ₹25 crore, with total investments not exceeding ₹25 crore, including follow-ons. - Follow-on investments require pro-rata participation and cannot increase shareholding beyond pre-issue levels. - Investor eligibility is tightened to accredited investors only, excluding retail investors to reduce disputes and enhance fund governance. - Reporting requirements now include investment-wise valuations and cash flows to benchmarking agencies. - Lock-in periods are reduced from 1 year to 6 months for third-party sales to improve liquidity.

These changes promote disciplined fundraising and governance but may limit access to capital for early-stage startups and exclude smaller investors. Startups must prepare for increased scrutiny and operational transparency from fund managers.

SEBI's IPO reforms, effective September 2025, focus on balancing investor protection with market growth:

- Minimum public shareholding norms now offer larger companies more time and flexibility to comply post-listing. - Stricter fund utilization caps: general corporate purposes capped at the lesser of ₹10 crore or 15% of issue size, down from 25%. - Mandatory certification of fund usage by statutory auditors on a quarterly basis. - Enhanced disclosure requirements for promoter group transactions and pre-IPO placements within 24 hours. - Relaxation on ESOPs for promoters, as discussed.

For startups, these reforms mean more predictable IPO compliance paths and increased investor confidence but also heightened regulatory diligence. Valuations may moderate as transparency increases and investor scrutiny intensifies.

SEBI's introduction of the SWAGAT-FI single window gateway, effective June 2026, simplifies compliance for low-risk foreign investors by harmonizing Foreign Portfolio Investor (FPI) and Foreign Venture Capital Investor (FVCI) registrations. Key benefits include:

- Dual registration under FPI and FVCI without additional documentation. - Extended registration validity to 10 years from current 3-5 years. - Enables foreign investors to invest seamlessly in both listed equities and unlisted startups.

This regulatory streamlining is expected to attract more stable foreign capital into Indian startups, thereby improving fundraising prospects and potentially supporting higher valuations. However, investors and startups must remain mindful of foreign investment limits and compliance nuances.

Key actionable insights for startups include:

- Prioritize governance and reporting to attract disciplined investors. - Prepare for longer fundraising cycles with realistic valuations. - Leverage new ESOP rules to retain founder motivation.

Investors should focus on due diligence emphasizing governance, operational performance, and realistic valuation assumptions.

While SEBI's reforms aim to mature the ecosystem, they introduce new risks:

- Reduced retail and mutual fund participation may decrease liquidity and increase volatility in late-stage funding rounds. - Stricter compliance demands raise operational costs for startups, potentially affecting burn rates and runway. - Valuation moderation might lead to investor dissatisfaction if expectations are not managed properly. - Foreign investment, though simplified, faces geopolitical and regulatory risks.

Both startups and investors must proactively manage these risks through robust governance frameworks, clear communication, and strategic capital allocation plans.