Looking to boost funding for startups, SEBI plans to ease regulations on angel funds

Markets regulator, SEBI is planning to increase the maximum investment that an angel fund can place in venture capitals from the current Rs. 5 crore to Rs. 10 crore. The move is said to be required to adapt to the fast changing ecosystem where angels are investing more, hence providing more opportunities to angel funds.

SEBI will continue to cap the minimum investment by an angel investor at Rs. 25 lakh. The regulator also plans to reduce the minimum corpus size an angel fund is required to have in order to register with it to half – i.e Rs. 5 crore. They are also planning to raise the maximum period of accepting funds from an angel investor from the current 3 years to 5 years. It is expected to provide angel funds more time to identify opportunities and invest accordingly.

Angel funds is a sub-category of Alternative Investment Funds (AIFs) which aim at boosting entrepreneurship through financing small startups at a time when companies find it difficult to raise capital from traditional sources – like banks and other financial institutions. Angel funds also offer mentoring to the startups they invest in along with access to their business networks.

As per a report, there are currently 398 AIFs registered with SEBI, of which 114 are registered under category I – which also includes eight angel funds.

In accordance with the Companies Act, SEBI is also looking to amend its ‘Registrars to an Issue and Share Transfer Agents’ norms and ‘Banker to an Issue’ regulations that enable a registrar as well as banker to a certain issue to maintain records of the account books and documents from eight years, at minimum, after completion of the relevant transactions.

Currently, listed companies availing services of depositories are restricted from benefits of cash distribution.