The Securities and Exchange Board of India (SEBI), the country’s capital market regulator, is considering a series of reforms to expand the scope of investors in angel funds. These reforms may include allowing Hindu Undivided Families (HUFs), family trusts, sole proprietorships, and other entities to invest in angel funds.
Angel funds are a specific category of Alternative Investment Funds (AIFs) that focus on investing exclusively in startups. While they are structured as AIFs, angel funds cater primarily to accredited investors, individuals who meet certain net worth criteria and are deemed to have a better understanding of investment risks.
Accredited investors are individuals or entities that meet specific financial thresholds, typically related to net worth or annual income. SEBI mandates third-party verification of these criteria before granting accreditation, which allows them to invest in angel funds. This ensures that investors are well-equipped to handle the risks associated with investing in startups.
SEBI’s proposed changes aim to make angel investing more accessible and efficient. Some of the key proposals include:
SEBI has suggested removing the current minimum investment requirement of ₹25 lakh for angel investors. This will make angel funds more accessible to a broader pool of potential investors, as other AIFs typically require a minimum investment of ₹1 crore.
To ensure that those involved in managing the angel funds have a personal stake, SEBI proposes that employees and directors of the fund be allowed to invest a minimum of ₹5 lakh.
Currently, angel funds are required to have a minimum corpus of ₹5 crore. However, SEBI plans to relax this requirement if the fund has at least five accredited investors on board before it begins investing.
SEBI proposes removing the 25% diversification limit for angel funds. This would allow angel funds to concentrate their investments more heavily on fewer startups if they choose.
SEBI plans to raise the investment cap in a single startup from ₹10 crore to ₹25 crore while lowering the minimum investment amount from ₹25 lakh to ₹10 lakh. This would provide angel funds with greater flexibility in their investments.
The proposed changes by SEBI are designed to make angel funds more attractive and easier to manage, ultimately fostering more investment into the Indian startup ecosystem.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
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