Sebi boosts start-up funding, relaxes rules for angel funds

Sebi relaxed its rules for investment by angel funds in the start-up space, including by allowing them to invest in up to five-year old entities


The lock-in requirement has been reduced from three years to one year for angel funds, and their minimum investment threshold has been slashed from Rs50 lakh to Rs25 lakh. Photo: Aniruddha Chowdhury/Mint
The lock-in requirement has been reduced from three years to one year for angel funds, and their minimum investment threshold has been slashed from Rs50 lakh to Rs25 lakh. Photo: Aniruddha Chowdhury/Mint

Mumbai: Seeking to give a fillip to start-up funding, capital markets regulator Securities and Exchange Board of India (Sebi) on Wednesday relaxed its rules for investment by angel funds in this space, including by allowing them to invest in up to five-year old entities.

Besides, the lock-in requirement has been reduced from three years to one year for angel funds, and their minimum investment threshold has been slashed from Rs50 lakh to Rs25 lakh.

Angel funds are allowed to invest in overseas venture capital undertakings up to 25% of their investible corpus in line with other alternative investment funds (AIFs). The upper limit for number of angel investors in a scheme will be increased from 49 to 200, as per decision taken by the Sebi board on Wednesday.

The board approved amendments to Sebi (Alternative Investment Funds) Regulations, 2012, following which the definition of start-ups for angel funds investments will be similar to one of Department of Industrial Policy & Promotion (DIPP) as given in their start-up policy.

“Accordingly, angel funds will be allowed to invest in start-ups incorporated within five years, which was earlier three years,” Sebi said.

To diversify risks, Sebi has also allowed angel funds to make overseas investments up to 25% of their investible corpus, in line with other Alternative Investment Funds (AIFs). There are many start-ups that require a smaller amount of validating proposition and bringing down the limit to Rs25 lakh from Rs50 lakh will help such companies raise funds at the initial stage of idea generations.

In order to further develop the alternative investment industry and the start-up ecosystem in India, Sebi in March 2015 constituted a committee of experts drawn from the across market participants called Alternative Investment Policy Advisory Committee (AIPAC) under the chairmanship of N.R. Narayana Murthy.

AIPAC had submitted its report to Sebi with various recommendations, including certain recommendations relating to angel funds. Considering the recommendations in the report and public comments thereon, the Sebi board has now approved amendments to AIF regulations with respect to angel funds.

Angel fund, a sub-category of AIF, encourages entrepreneurship in the country by financing small start-ups at a stage where such firms find it difficult to obtain capital from traditional sources of finance such as banks and financial institutions. In addition, angel funds offer mentoring to entrepreneurs as well as access to their own business networks. Currently, 266 AIFs are registered with Sebi, of which, 84 are registered under Category I, including four angel funds.

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