Sebi bats for easing angel fund norms; move to aid funding of startups

Sebi plans to eliminate the minimum investment requirement of Rs 25 lakh for angel investors

Market regulator Securities and Exchange Board of India (Sebi) may soon allow angel funds to expand the scope of investors by including Hindu undivided families (HUFs), family trusts, and sole proprietorships, among others.

 

Angel funds, though structured as alternative investment funds (AIFs), are different as they only invest in startups and may soon only  cater to accredited investors.

 

Accredited investors are considered to have a better understanding of risks in investment and are required to meet the net-worth criteria, which is verified by a third-party accreditation agency before being allowed to invest in angel funds.

 

Sebi has proposed a slew of measures to ease norms for angel funds, including minimum investment, minimum corpus, relaxation in minimum and maximum investment limit in a startup, lower lock-in requirement, and diversification limit, among others.

 

 

It also plans to do away with the minimum investment requirement, currently set at Rs 25 lakh, from angel investors. For other AIFs, the minimum ticket size for investment is Rs 1 crore.

 

Sebi has also proposed to allow employees and directors of the angel funds to invest a minimum of Rs 5 lakh, to ensure skin in the game

 

The minimum corpus requirement of Rs 5 crore may also be removed if the angel fund starts investing only after onboarding a minimum of five accredited investors. Sebi has proposed to remove the 25 per cent diversification limit for such funds.

 

The market regulator is looking to increase the cap of Rs 10 crore for investment in a single startup to Rs 25 crore while the minimum amount set at Rs 25 lakh is to be lowered to Rs 10 lakh.

 

With the flexibility in the norms, Sebi aims to ease investments in the Indian startup ecosystem. The review by Sebi also follows the recent Budget announcement of abolishing the angel tax.