Sebi board to give a fillip to angel funding

Sebi expected to take measures include allowing FPIs to invest in unlisted, non-convertible debentures and debt instruments


Photo: Aniruddha Chowdhury/Mint
Photo: Aniruddha Chowdhury/Mint

The Securities and Exchange Board of India (Sebi) is expected to take a series of steps to encourage angel investments and boost the start-up ecosystem, at its quarterly board meeting on Wednesday.

The measures include allowing foreign portfolio investors (FPIs) to invest in unlisted, non-convertible debentures (NCDs) and debt instruments, two people directly familiar with the development said, requesting anonymity.

The regulator may also introduce regulations related to profit-sharing agreements between company founders and private equity (PE) funds, according to the agenda of the meeting, a copy of which has been reviewed by Mint.

In July, the regulator had proposed tightening of corporate governance norms for PE investors.

The regulator also plans to halve the minimum corpus requirement for angel investors and venture capital funds to Rs25 lakh.

While the number of angel investors in India has grown considerably over the past few years, only 85 have registered themselves under Sebi because of the stringent regulatory requirements.

“Angel investing in business start-ups is a lucrative proposition. But, Sebi regulations are not in line with the business environment and thus taking registration was not feasible. Reducing the corpus requirement to Rs25 lakh would indeed be helpful. Many of the angel investor platforms also insist on Rs25 lakh corpus requirement,” said an angel investor who declined to be named.

Sebi may also allow angel funds to invest 25% of their corpus outside the country.

“This is to streamline AIF (alternative investment funds) regulations. For other categories of AIFs, 25% of funds can be deployed towards overseas investments,” said a Sebi official, one of the two people cited earlier.

Angel funds can currently invest in start-ups that have been incorporated during the preceding three years from the date of such investments. This could also be relaxed to five years.

Sebi’s plan to allow FPIs to invest in unlisted NCDs and securities debt instruments comes after the Reserve Bank of India allowed the same in May.

“The move is aimed at boosting foreign inflows into Indian markets and deepening and widening the corporate bond market,” the second person cited above said.

Sebi is also likely to regularize special profit-sharing deals that company promoters enter with PE funds.

“Any profit-sharing agreement with PE funds would need prior approval from the company’s board and shareholders. In case of existing agreements, full disclosure would need to be made via stock exchanges,” said the Sebi official.

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