India's market regulator on Wednesday proposed expanding the pool of angel fund investors and increasing investment limits in startups, but sought stricter scrutiny of these investors.
The Securities and Exchange Board of India (SEBI) regulates angel funds, which provide capital to early-stage startups, as part of its alternative investment funds framework.
As of March 31, 2023, 82 angel funds were registered with SEBI, with total investor commitments of 70.53 billion rupees ($836.10 million) and investments of 33.43 billion rupees
SEBI aims to "restrict angel funds to investors with commensurate risk appetite and ability to evaluate investment proposals while enhancing ease of doing business."
The regulator has proposed setting the investment range for angel funds in startups to a minimum of 1 million Indian rupees and a maximum of 250 million rupees.
Currently, the limits are set at a minimum of 2.5 million rupees and a maximum of 100 million rupees.
Eligible investors include family trusts, corporations, and individuals with five years of experience, who must be accredited by an external independent agency.
However, the number of investors for any single company will be capped at 200.
SEBI has also proposed removing any minimum investment corpus for angel funds, provided that the fund has at least five accredited investors.
Although diversification rules will no longer apply, each investment must involve contributions from at least three investors to prevent funds from becoming single-investment vehicles.
SEBI has sought public comments until November 28 before finalizing rules, giving existing funds one year to comply.
