SEBI notifies new norms for 'angel fund’ investments

The Securities and Exchange Board f India (SEBI) has notified revised norms for angel investors, who provide funding to companies at their initial stages, so as to encourage entrepreneurship in the country and open financing sources for small start-ups.

SEBI, on Monday, notified amendments to venture capital the rules, allowing angel funds to be registered as alternative investment funds. The regulator has inserted a separate chapter in the regulations that govern 'venture capital funds' and has sought to define angel funds.

Angel investors are allowed to be registered as 'Alternative Investment Funds (AIFs)', a newly-created class of pooled-in investment vehicles for real estate, private equity and hedge funds, according to an official notification.

The amended regulations, which provide a framework for registration and regulation of angel pools, also seek to limit fund raising by angel funds to angel investors.

The amendments to the SEBI (Alternative Investment Funds) Regulations, 2012 seeks to define 'angel funds', which are included under category-I venture capital funds, and are in line with the finance minister's announcement in the 2013-14 budget, SEBI said in a notification issued on Monday.

The amended regulations bar angel funds from raising funds from sources other than angel investors. In view of the high risk investments of such funds, SEBI has also imposed certain conditions on such investors.

Accordingly, individual angel investors should have early stage investment experience or experience as a serial entrepreneur or should be a senior management professional with 10 years experience.

They should also be required to have net tangible assets of at least Rs2 crore.

Corporate angel investors should be required to have Rs10 crore net worth or be a registered AIF/VCF.

Angel funds should have a corpus of at least Rs10 crore (as against Rs20 crore for other AIFs) and minimum investment by an investor should be Rs25 lakh (may be accepted over a period of maximum 3 years) as against Rs1 crore for other AIFs.

Further, the continuing interest by sponsor / manager in the angel fund should be not less than 2.5 per cent of the corpus or Rs50 lakh, whichever is less.

For ensuring investments are genuine, angel investments, angel funds should invest only in venture capital undertakings which are not more than 3 years old, have a turnover not exceeding Rs25 crore, are not promoted, sponsored or related to an industrial group whose group turnover is in excess of Rs300 crore, and have no family connection with the investors proposing to invest in the company.

Further, investment in an investee company by an angel fund should be not less than Rs50 lakh and more than Rs5 crore and should be required to be held for a period of at least 3 years.

'Social Venture Funds' may collect a minimum amount of Rs25 lakh as grants, provided no profits or gains accrue to the provider of such grants.