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Angel Funds, categorized as Category I Alternative Investment Funds (AIFs), pool capital from Angel Investors to fund start-ups.
SEBI new proposal for angel funds.
The Securities and Exchange Board of India (SEBI) plans to broaden the definition of Qualified Institutional Buyers (QIBs) to include Accredited Investors (AIs) for investments in Angel Funds.
Currently, the framework faces challenges, particularly in ensuring investors possess the necessary risk tolerance.
The Companies Act, 2013, restricts private placement offers to 200 investors, excluding QIBs. SEBI’s proposal to include AIs in the QIB definition aims to broaden investment opportunities for a wider pool of sophisticated investors.
Angel Funds, categorized as Category I Alternative Investment Funds (AIFs), pool capital from Angel Investors to fund start-ups.
Proposed Amendments
1. Accredited Investors as QIBs: SEBI proposes including AIs in the QIB definition under ICDR Regulations, specifically for Angel Funds. This inclusion acknowledges the financial capacity and risk assessment capabilities of AIs, similar to QIBs.
2. Removal of the 200-Investor Limit: The existing restriction of 200 investors per Angel Fund investment may be removed. This change seeks to facilitate the growth of Angel Funds by attracting a larger number of investors and increasing capital flow to start-ups.
Benefits of the Proposed Changes
These amendments aim to:
– Strengthen Risk Management: AIs, vetted by external agencies, are deemed to have the financial strength and risk awareness needed to invest in high-risk, illiquid assets like start-ups.
– Align with Regulatory Objectives: Including AIs as QIBs supports the regulatory goal of facilitating effective capital raising while safeguarding investor interests.
– Support Start-up Growth: Expanding the pool of eligible investors enables Angel Funds to direct more capital towards start-ups, fostering innovation and economic growth.
SEBI is currently seeking public feedback on these proposals until March 14, 2025. Stakeholders can submit their comments through the SEBI website. The objective is to ensure the regulatory framework effectively supports the growth of Angel Funds while maintaining robust investor protection measures.
