Ease of Rules for Angel Funds – A SEBI Boost to Startup Funding

SEBI has made a decision to double the limit on investment by angel funds in venture capital undertakings to ₹10 crores, for the benefit of early-stage startups. The amendments to Alternative Investment Funds regulations, with respect to angel funds, have been approved by the SEBI Board.

This increase is expected to bring about a rise in opportunities for angel funds.

Angel Funds boost entrepreneurship by providing financing support to small-scale startups, when obtaining capital from traditional resources like financial institutions and banks, gets difficult for them.

A working group had been formed by the market regulators, comprising of consultants, angel networks, and startups. The aim was to simplify some provisions of Alternative Investment Funds for ease of doing business for angel funds.

SEBI decision – The Key elements

• The maximum investment by angel funds in venture capital undertakings will increase from ₹5 crores to ₹10 crores. The minimum investment will remain at ₹25 lakhs.
• The minimum corpus size for an angel fund to register with it will be ₹5 crores.
• A startup can accept funds from an angel investor for a maximum period of 5 years.
• The requirement of filing scheme memorandum to SEBI is replaced with the requirement of filing term sheet, that will have material information. This requirement will have to be met within 10 days of launching the scheme.
• The angel funds shall have more time to identify opportunities and invest in venture capital firms with the amendments.
• If the angel fund is formed as a company, the provisions of the Companies Act shall be applicable.

The SEBI Board has also revised the provisions regarding transfer of listed securities. The request for transfer of listed securities shall not be processed without securities being held in a dematerialized form. This has been done to put a tab on the risk of manipulation and fraud in physical transfer of securities. Transfer of securities in demat form will improve convenience and safety of transactions.

The option of distribution of cash benefits like dividends through depositors has also been included. This option will provide the investors with more choices, on account of its benefits.

Also read, FFS – Indian Government’s Initiative to Promote Indian Startups.

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