SEBI’s start-up boost: allows 200 investors in a scheme

Our Bureau Mumbai | Updated on January 15, 2018


Reduces minimum investment to ₹25 lakh, slashes lock-in period to one year

Securities markets regulator SEBI has eased the regulations governing investment in angel funds, thus enabling more fund infusion in start-ups.

Considering the recommendations of the NR Narayana Murthy Committee at its board meeting held on Wednesday, SEBI decided to increase the upper limit of number of angel investors in a scheme (fund) to 200 from 49, besides allowing these funds to invest in start-ups up to five years old.

Earlier, angel funds could invest in start-ups which were between zero and three years old.

Tejesh Chitlangi, Partner IC Legal, said, “It's noteworthy that out of 235+ AIFs registered with SEBI, less than five are in the category of angel fund. With easier minimum investment requirements, i.e. ₹25 lakh instead of ₹1 crore prescribed for other categories of AIFs, lower regulatory fee, lower fund size norms, etc., the regime would ensure more and more angel fund registrations and increased flow of investments into start-ups. However, the single-digit registrations since the last three years following introduction of the angel fund regime, clearly shows that it has failed to take off.”

Sumit Agrawal, former lawyer for SEBI & Founder, Suvan Law Advisors, said, “Encouragement to angel investing in Prime Minister Modi’s Start-up India movement is a welcome move. Reducing the minimum corpus, spreading their risk overseas, and aligning the definition of ‘start-up’ to that of the Department of Industrial Promotion and Policy would indeed be beneficial and create a conducive environment for angel investing. Streamlining regulations and increasing the number of investors to 200 from 49 in alignment with the Companies Act, 2013 are also progressive.”

Small is beautiful

SEBI also eased the norm for minimum investment requirement by an angel fund in a venture capital undertaking to ₹25 lakh from ₹50 lakh. It also reduced the lock-in period of these investments to one year from three years, besides allowing angel schemes (funds) to invest 25 per cent of their investible corpus in overseas start-ups.

“The decision to reduce the existing minimum investment requirement is a good move since several fund managers looking to invest much smaller sums in the portfolio entities found this requirement to be a big constraint in setting up an angel fund. No other AIF category was required to follow such minimum investment norm, which had and rendered it highly impractical,” said Chitlangi.

On the reduction in lock-in period, Chitlangi said, “For this reason alone (impractical), a requirement like this was never prescribed for other AIF categories, and hence, reducing this period to one year makes it less onerous now.”

Published on November 23, 2016

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