A commuter carries a soft briefcase while walking through the central business district in Sydney, Australia. (Photographer: Brendon Thorne/Bloomberg)

SEBI To Ease Rules For Angel Funds To Boost Startup Funding 

Looking to provide an impetus to early-stage startups, markets regulator SEBI today decided to double the investment limit by angel funds in venture capital undertakings to Rs 10 crore.

The SEBI board has approved amendments to Alternative Investment Funds regulations with respect to ‘angel funds’. The decision is based on the recommendations of its working group, the Securities and Exchange Board of India said in a statement. The increase is expected to provide more opportunities to angel funds.

The markets regulator had formed a working group comprising of various angel networks, consultants and startups, to look at simplifying certain provisions of AIFs to provide ease of doing business for angel funds.

Angel funds, a sub-category AIFs, encourage entrepreneurship by financing small startups at a stage when they find it difficult to obtain capital from traditional sources of finance such as banks and financial institutions.

According to the market regulator’s decision today,

  • SEBI will increase the maximum investment by angel funds in venture capital undertakings to Rs 10 crore from the current Rs 5 crore.
  • However, the minimum investment by an angel investor will continue to be Rs 25 lakh.
  • Further, SEBI will halve the minimum corpus size required for an angel fund to register with it to Rs 5 crore.
  • Besides, the regulator will raise the maximum period for which a startup can accept funds from an angel investor to five years from three currently.
  • The move will provide angel funds more time to identify opportunities and invest in venture capital firms.
  • The requirement for filing of scheme memorandum to SEBI by angel funds will be replaced with the requirement of filing term sheet containing material information, as specified by the regulator within 10 days of launching the scheme.

SEBI said the provisions of the Companies Act will apply to the Angel fund, if it is formed as a company.

SEBI has decided to put in place a consultation paper reviewing buyback and takeovers regulations for simplifying the language, removing redundant provisions and inconsistencies, and updating the references to the Companies Act and other SEBI rules.

An important amendment proposed in Takeover Regulations is granting of additional time for upward revision of open offer price, the regulator noted.

Moreover, the board has revised the provisions relating to transfer of listed securities. It has decided that requests for effecting transfer of listed securities will not be processed unless the securities are held in the dematerialised form with a depository. The measure is aimed at curbing fraud and manipulation risk in physical transfer of securities by unscrupulous entities.

According to SEBI, transfer of securities only in demat form will improve ease, convenience and safety of transactions for investors.

The SEBI board has also decided to include the option of distribution of cash benefits like dividends through depositories, in addition to the present system of distribution directly by the listed companies or through their Registrar to an issue and Share Transfer Agents.

The option will widen the choice for investors with its benefits such as shorter turnaround time for receiving benefits, ability to get consolidated statements of all such benefits and to receive alerts (SMS or e-mails).