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Informist, Wednesday, Nov. 13, 2024

 

MUMBAI – The Securities and Exchange Board of India on Wednesday issued a consultation paper seeking to streamline the regulatory framework for angel funds under the alternative investment fund norms. The regulator aims to rationalise their fundraising processes, strengthen disclosure and governance requirements, and provide operational clarity and investment flexibility.

 

Angel funds, a sub-category of AIF Regulations, play an important role in channelising investments to start-ups. There were 82 angel funds registered with SEBI under the AIF Regulations as of Mar. 31, with a total of INR 70.53 billion in commitments and INR 33.43 billion in investments, the regulator said in the consultation paper. This industry has experienced significant growth over the past five years, with a compound annual growth rate of 106% in investments.

 

The AIF industry had asked the regulator to review certain regulations pertaining to angel funds. These demands included increasing the investment limit in start-ups, extending the investment horizon to angel investors, and removing the lock-in period. SEBI did a complete assessment of the industry and observed inconsistencies in the operational practices of angel funds. These included commitment periods, closing procedures, and offering investment opportunities due lack of clarity in the current regulatory framework, the paper said.

 

SEBI has proposed to replace the minimum corpus requirement of INR 50 million with the requirement that an angel fund start investing only after on-boarding minimum five accredited investors. It has also proposed that the investment by an angel fund in any start-up should not be less than INR 1 million and not exceed INR 250 million and to remove the 25% diversification limit for angel funds as mentioned in the current regulations.

 

The regulator has proposed that the lock-in requirement for investment by an angel fund in a start-up be reduced to six months in case the angel fund sells the investment to a third party.

 

In the consultation paper, SEBI has proposed retaining the prohibition on listing of units of angel funds. "A specific prohibition has been made for listing of angel funds in extent framework since Angel funds do not have a common portfolio for all investors and each investment may have different set of investors, consequently, there may be concerns regarding fungibility of units issued by the angel fund. Hence, it may not be feasible to enable listing of units issued by angel funds," the paper said.

 

While the proposed changes related to investment conditions may be made applicable with effect from the notification of amendment to AIF Regulations in this regard, a glide path may be provided for existing angel funds with respect to fund raising and investor on-boarding process, to not affect their ongoing investment activities. "AIPAC (Alternative Investment Policy Advisory Committee) recommended providing a time-period of 1 year to existing Angel Funds for the transition to Accredited Investor regime," the paper said. SEBI has sought comments on the consultation paper by Nov. 28.  End

 

Reported by Kshipra Petkar

Edited by Ashish Shirke

 

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