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Startups face regulatory heat as ED probes deepen in 2025

EntrackrEntrackr · 6m ago
Startups face regulatory heat as ED probes deepen in 2025
Medial

Startups face regulatory heat as ED probes deepen in 2025 India’s Enforcement Directorate (ED) has intensified its scrutiny of startups in 2025, launching a series of investigations across various sectors, including gaming, fintech, and e-commerce. What started as a few separate investigations has now turned into a larger crackdown, putting a spotlight on how some of India’s top-funded startups follow rules around foreign investment, business structure, and overall compliance. One of the most high-profile targets this year has been opinion trading platform Probo, which came under the ED scanner in July. The agency conducted searches across multiple locations and seized assets worth Rs 284.5 crore, alleging that Probo’s model, where users trade on real-world outcomes, amounts to illegal betting and violates the Prevention of Money Laundering Act (PMLA). While the company has denied any wrongdoing and assured full cooperation with the authorities, on July 15, the Punjab & Haryana High Court heard Probo’s plea to quash the FIR and unfreeze its bank accounts. Though the court declined interim relief, it asked the state to respond regarding partial unfreezing. The matter is now listed for the next hearing on August 26. After the ED intervention, the case has become part of a broader debate over how such platforms are classified and regulated in India’s evolving legal landscape. Around the same time, Myntra, the fashion platform owned by Flipkart, became the subject of a fresh FEMA complaint filed by the ED. The case revolves around alleged misuse of FDI norms to the tune of Rs 1,654 crore. According to the ED, Myntra operated under the wholesale cash-and-carry model, which is eligible for 100% FDI through the automatic route, but was effectively engaged in multi-brand retail by routing goods through a group entity, Vector E-Commerce. According to this structure, ED claims that it has violated caps on intra-group sales and circumvented retail FDI restrictions. The complaint has been placed before the adjudicating authority in Bengaluru. Another startup in the ED’s crosshairs is Simpl, a buy-now-pay-later (BNPL) platform operated by One Sigma Technologies. The agency has alleged FDI violations worth Rs 913 crore, stating that the company misclassified its operations as IT services to raise foreign capital under the automatic route—when in fact, its activities fall under regulated financial services, which require prior government approval. The case underscores a growing pattern where fintech startups offering credit-linked services are being questioned over regulatory arbitrage in FDI filings. In parallel, Paytm and its subsidiaries have come under the ED’s radar for alleged violations of foreign exchange rules. In April 2025, the agency issued a show-cause notice to One97 Communications, Little Internet, and Nearbuy India, citing FEMA breaches worth Rs 611 crore. The matter relates to overseas investments made between 2015 and 2019, which were made before Paytm acquired the entities, without following the RBI’s reporting and pricing norms. While Paytm has maintained that the issue predates its ownership and has no impact on current operations, the case adds to the growing list of startups grappling with retrospective scrutiny over FDI compliance. The scrutiny hasn’t been limited to the domestic startup ecosystem. Global forex trading platform OctaFX is under ED investigation for allegedly laundering nearly Rs 800 crore through unauthorized forex trading in India. The agency claims the firm used fake KYCs, mule accounts, and shell companies to route funds overseas. Assets worth over Rs 292 crore, including a yacht and Spanish real estate, have been attached, with the case ongoing under the PMLA. The ED’s widening crackdown signals a shift from legacy probes to deeper scrutiny of digital-first businesses. For founders and investors, compliance is no longer optional; it’s a live operational risk. The sheer breadth of probes also indicates just how badly tangled with red tape regulations remain in India, pushing everyone to break the rules in one way or another at times. The sheer number of hoops that firms have to jump through, and consequently, the huge amount of time they can save by taking what are sometimes advised as ‘safe shortcuts’, frequently leads to missteps. We have no doubt that, going by the letter of the law, perhaps even ED (which has a terrible conviction record, going more for settlements) will find some overstepping, besides the obvious criminality in some cases. But the larger issue remains the mess that are regulations, and the failure of regulators to address these issues. Regulation in India has been interpreted almost exclusively as a role whose job is to ‘protect’ the end consumer, something where it is easier to pass off tokenism as action. We believe regulators who take a more holistic view, including making life genuinely easier for the firms they are supposed to regulate, will achieve a lot more eventually for the whole ecosystem.

Fractal IPO to fetch over 5X returns for Apax Partners

EntrackrEntrackr · 17d ago
Fractal IPO to fetch over 5X returns for Apax Partners
Medial

Fractal IPO to fetch over 5X returns for Apax Partners AI solutions provider Fractal Analytics has filed its red herring prospectus (RHP) and announced a price band of Rs 857–900 per equity share for its upcoming initial public offering (IPO). At the upper end of the price band, Fractal’s valuation is expected to be around $1.6 billion. According to its RHP, Fractal has trimmed its IPO size by 42% to Rs 2,834 crore, which comprises fresh issue of shares worth Rs 1,023.5 crore and an offer for sale (OFS) of Rs 1,810.4 crore by existing shareholders. Major shareholders, including Apax Partners, TPG, and GLM Family Trust, will participate in the offer for sale (OFS) and are expected to earn healthy returns on their investments through the initial public offering, as per Entrackr analysis. Quinag Bidco Ltd, owned by Apax Partners, holds an 18.64% stake in the company as of the RHP date and will offload the largest portion of the total OFS by selling shares worth Rs 880.9 crore (around $98 million), generating a 5.2X return on its investment. TPG Capital, which is the largest shareholder in the company with a 25.49% stake, will offload shares worth Rs 450 crore ($50 million), yielding a 1.4 times return. Another major shareholder, GLM Family Trust, which owns a 15.59% stake, will also cash out Rs 450 crore through the OFS. Meanwhile, individuals Satya Kumari Remala and Rao Venkateswara Remala are set to earn Rs 29.5 crore from the IPO, with a bumper 450X return at a weighted average cost of acquisition of just Rs 2 per share. Notably, Fractal co-founders Srikanth Velamakanni and Pranay Agrawal will not participate in the OFS and together hold a 10% stake in the firm. At the upper price band of Rs 900, Srikanth Velamakanni’s 5.17% stake stands valued at Rs 790.4 crore (around $88 million), while Pranay Agrawal’s 4.83% stake valued at Rs 738 crore (about $82 million). Founded in 2000, Fractal supports global enterprises across consumer goods and retail, technology, media and telecom, healthcare and life sciences, and BFSI. It counts Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, and Tesla as clients. The fresh proceeds from the IPO will be used to fund inorganic growth, invest in subsidiaries, meet working capital requirements, and for general corporate purposes. Axis Capital, Citigroup, Morgan Stanley, and Kotak Mahindra Capital Company are the book-running lead managers to the issue. On the financial front, Fractal posted consolidated revenue of Rs 2,765 crore in FY25, up from Rs 2,196 crore in FY24. The company reported a net profit of Rs 220.6 crore in FY25, reversing a loss of Rs 54.7 crore in FY24. In the first half of FY26, it recorded revenue of Rs 1,559 crore and a profit of Rs 71 crore.

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