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SEBI eases norms for angel funds to aid startups

28 March, 2018

The Securities and Exchange Board of India (SEBI) has eased some rules for angel funds, a move that is likely to encourage startup funding.

The capital markets regulator doubled the maximum investment amount in venture capital undertakings by an angel fund to Rs 10 crore, it said in a statement after a board meeting.

The regulator also reduced the requirement of a minimum corpus of an angel fund to Rs 5 crore from Rs 10 crore, and increased the maximum period for accepting funds from angel investors from three years to five years.

Under the revised rules, instead of filing scheme memorandum, angel funds can submit term sheet within ten days of launching the plan.

If the angel fund is formed as a company, the Companies Act shall apply, the regulator said.

The change in norms were based on recommendations by a group of angel networks, consultants and start-ups, said SEBI.

The relaxation of the norms is expected to boost startup funding. The number of angel and seed funding deals nearly halved to 435 in 2017 from 901 in 2016, according to VCCEdge, the data and research platform of News Corp VCCircle. The total disclosed valued of these deals also fell sharply, to $245 million from $374 million.

This means the billion-dollar funding rounds in consumer Internet unicorns Flipkart, Paytm and Ola last year don’t give an accurate picture of the overall startup ecosystem in India.

In February, the Budget promised more measures to boost the alternative investment fund industry, raising hopes for startups as well as investors.

The industry has also been waiting for the government to address the angel tax issue, which has long been a contentious issue in the startup community. Several startups have been hit with tax notices over funds raised from friends, family, angel investors or angel networks not registered with the regulator and in cases where the infusion is higher than the company’s fair market value. FMV, in its simplest sense, is the price that something would sell for on the open market.

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SEBI eases norms for angel funds to aid startups

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