Mumbai: Milestone Capital Advisors Ltd’s initial public offering (IPO) proposal has been stalled for about eight months because of objections by capital market regulator Securities and Exchange Board of India (Sebi) that it may expose small investors to too much risk.

Merchant bankers are in discussions with the regulator to rework the terms of the offer, according to two people involved with the IPO.

IDFC Capital Ltd, Edelweiss Capital Ltd and ICICI Securities Ltd are the merchant bankers to the issue.

Milestone wants to sell a 30% stake for an undisclosed amount, at least Rs150 crore of which will be invested as seed capital for two proposed funds—one for infrastructure and the other for small and medium enterprises (SMEs).

The regulator contends that the principles of venture capital (VC) or private equity (PE) investment aren’t in line with the needs of most retail investors, according to one of the officials cited above.

“Venture capital or PE funds are supposed to raise money from high net-worth individuals (HNIs) and look for high-return opportunities, which may or may not involve high risk," the person said.

PE investments typically have a five-seven year horizon; retail investors tend to plough their money in for shorter periods.

PE firms are different from other listed companies and suitable only for such entities as institutional investors, said Vikram Utamsingh, executive director and head of PE at audit and consulting firm KPMG India Pvt. Ltd.

“The fund will give returns over a four-five year period, so how will returns go back to retail investors who are in it for the short term?" he asked.

Traditionally, PE firms raise money from investors known as limited partners, which include financial institutions, insurance companies, pension funds and family offices.

The time taken to raise money in this way could be anywhere between 8-12 months or more.

In the past two years, domestic PE funds such as Aditya Birla Capital Advisors Pvt. Ltd have raised money from HNIs as well. Those wanting to invest in Milestone may have to set aside more than they would for other IPOs.

“Venture capital regulations stipulate a minimum investment of Rs5 lakh for these funds," said the person cited above.

Compared with that, investors can participate in IPOs with as little as Rs6,000-8,000.

Milestone filed its offer document with the regulator on 25 June.

Sebi, which usually approves IPOs in 30 days, lists its status as “clarifications awaited from lead manager" on its website.

A Sebi official declined to comment, saying the regulator does not comment on company-specific issues.

The merchant bankers also declined to comment.

“We are in discussions with Sebi in this regard. I cannot comment further on this issue as it could jeopardize the discussions," said a senior executive with one of the merchant bankers handling the issue.

As of 31 March, Milestone managed assets of around Rs3,119.45 crore for 12,700 fund investors. Ved Prakash Arya, managing director and chief executive of Milestone, declined to comment.

Future Ventures India Ltd, the investment arm of retailer Kishore Biyani’s Future Group, is another PE firm that is seeking to sell shares.

It aims to raise Rs750 crore from its IPO to create, build, invest in or acquire and operate businesses in consumption-led sectors, the firm said in its draft red herring prospectus, filed in late August.

The plan is scaled down from the 2008 filing, in which the firm sought to raise Rs3,700 crore.

That plan was scrapped after the market crashed in the aftermath of the global meltdown. Sebi has approved the IPO plan, a Future Group spokesperson said.

Mint reported in September last year that the share sale was likely to be held in February-March.

IL&FS Investment Managers Ltd, the country’s biggest PE fund with $3.2 billion ( Rs14,530 crore) under management, is the only one that’s listed in India.

Its parent IL&FS Ltd acquired the listed Credit Capital Venture Fund (India) Ltd in 1996, absorbed it into its own PE business and renamed it IL&FS Investment Managers. Credit Capital used to invest out of its balance sheet and did not have a dedicated fund.

Globally, large buyout firms that have sold shares, such as Blackstone Group Lp and Kohlberg Kravis Roberts and Co., have been trading at below the listing price.

Blackstone, which in 2007 was one of the earliest large PE firms in the US to go public, listed at $31.

On Tuesday, the stock closed at $17.69 on the New York Stock Exchange.

Milestone’s prospectus also lists several market-related risks associated with putting IPO money into a PE fund. This includes being able to raise the targeted amount for the planned funds, returns on investment and other issues.