A consultation paper on Wednesday has recommended allowing only accredited investors to invest in angel funds.
Such investors have to meet net-worth criteria verified by a third-party accreditation agency. Angel funds will conduct their first close, by onboarding a minimum of five accredited investors, within 12 months from the date of SEBI communication for taking their private placement memorandum on record. Existing angel funds will get a year to meet the accredited investor requirement.
“This will allay concerns regarding investors without the necessary risk appetite, making investments in start-ups through angel funds,” the regulator said in a note.
proposed relaxations
The regulator has also mooted several relaxations.
The requirement of having a minimum fund corpus of ₹5 crore will be done away with. The minimum investment by an Angel Fund in a start-up will be lowered to ₹10 lakh from ₹25 lakh and the maximum investment limit will be raised to ₹25 crore from ₹10 crore. This change is to reflect the growth of the angel ecosystem and the increasing interest in angel investments as an asset class. The 25 per cent diversification limit for Angel Funds will be done away with.
The lock-in requirement for investment by Angel Funds in a start-up may be reduced to six months from the current one year in case the fund sells the investment to a third party. Angel Funds may be allowed to make follow-on investments in its existing portfolio investee company, which is no longer a start-up, subject to certain conditions.
The number of investors who can contribute to a particular investee company of an Angel Fund will not exceed 200 during a financial year, excluding investors who are qualified institutional buyers. To enhance skin in the game, employees and directors of Angel Fund and its manager will be allowed to invest a minimum of ₹5 lakh in the fund.
The sponsor/manager of the funds will maintain a minimum continuing interest of 0.5 per cent of the investment amount or ₹1 lakh whichever is higher, in each investment of the Angel Fund.
The regulator also called into question whether angel funds should be regulated under SEBI’s AIF Regulations at all. The removal of angel tax in this year’s Budget has spurred investors to make direct investments in start-ups based on their due diligence, diminishing the incentive for registration as an Angel Fund. SEBI’s Alternative Investment Policy Advisory Committee has, however, recommended that angel funds continue as a regulated structure, given their importance in professionally managing investors’ capital.
