SEBI, the market regulator, suggested on Wednesday lifting the maximum investment limit by an angel fund in a startup to Rs 25 crore, which might benefit new-age technology companies. SEBI proposed in its consultation paper that the minimum investment limit be reduced to Rs 10 lakh from Rs 25 lakh, while the maximum investment limit be increased to Rs 25 crore from the current Rs 10 crore.
Furthermore, the SEC has recommended permitting only "accredited investors" to invest in angel funds, with the goal of streamlining their fundraising processes, increasing disclosure and governance rules, and offering operational clarity and flexibility.
These proposals seek to limit angel funds to investors with a comparable risk appetite and ability to evaluate investment proposals, while also improving the ease of doing business in this space. Angel Funds, a type of Category I AIF - Venture Capital Funds, provide capital to startups through angel investors. As of March 31, 2024, there were 82 angel funds registered with Sebi, with a total commitment of Rs 7,053 crore and investments of Rs 3,343 crore.
These proposals seek to limit angel funds to investors with a comparable risk appetite and ability to evaluate investment proposals, while also improving the ease of doing business in this space. Angel Funds, a type of Category I AIF - Venture Capital Funds, provide capital to startups through angel investors. As of March 31, 2024, there were 82 angel funds registered with Sebi, with a total commitment of Rs 7,053 crore and investments of Rs 3,343 crore.
According to the current AIF Regulations, an angel fund's investment in a business must be at least Rs 25 lakh and no more than Rs 10 crore. Furthermore, it has been proposed to remove the 25% diversification cap for angel funds. The current guidelines state that no more than 25% of an angel fund's total investments in all schemes can be made in a single venture capital undertaking. To ensure that angel funds only accept investors with the requisite risk tolerance, it has been advocated that only "accredited investors" invest in angel funds.
"If only accredited investors are permitted to invest, there may be no need for a limit on the total number of investors who can be accepted into an angel fund. However, the 200-investor limit per angel fund business would continue to apply annually, excluding Qualified Institutional Buyers (QIBs)," Sebi stated.
It has been proposed that employees, directors, and managers of angel funds invest in them with a minimum investment of Rs 5 lakh. The Sebi has advised replacing the criterion for an angel fund's minimum corpus of Rs 5 crore with the requirement that the angel fund begin investing only after onboarding a minimum of 5 accredited investors.
"If only accredited investors are permitted to invest, there may be no need for a limit on the total number of investors who can be accepted into an angel fund. However, the 200-investor limit per angel fund business would continue to apply annually, excluding Qualified Institutional Buyers (QIBs)," Sebi stated.
It has been proposed that employees, directors, and managers of angel funds invest in them with a minimum investment of Rs 5 lakh. The Sebi has advised replacing the criterion for an angel fund's minimum corpus of Rs 5 crore with the requirement that the angel fund begin investing only after onboarding a minimum of 5 accredited investors.
Angel investors are currently defined as anyone who wants to invest in an angel fund and meets one of the following requirements: they must be an individual investor with net tangible assets of at least Rs 2 crore, excluding the value of their primary residence, and they must have early-stage investment experience, serial entrepreneurship experience, or at least 10 years of experience in senior management.
The proposal is out for public comment until November 28th, according to the Securities and Exchange Board of India (Sebi).
