SEBI eases rules for angel funds

Securities and Exchange Board of India head office in Mumbai. File photo: Reuters

Securities and Exchange Board of India head office in Mumbai. File photo: Reuters

The Securities and Exchange Board of India (SEBI) has liberalised norms for angel funds to invest in early-stage entities as part of its attempts to facilitate fund-raising for start-ups.

The capital markets regulator also enhanced the scope of investment of foreign investors in unlisted debt securities.

Regulations amended

The board in its meeting decided to amend the SEBI (Alternative Investment Funds) Regulations, 2012 based on the recommendations received from the 'Alternative Investment Policy Advisory Committee' that was constituted under the chairmanship of N. R. Narayana Murthy.

The regulator has increased the upper limit for number of angel investors in a scheme from forty nine to two hundred.

Angel Funds will also be allowed to invest in start-ups incorporated within five years instead of the earlier norm of three years.

Minimum investment

The requirements of minimum investment amount by an angel fund in any venture capital undertaking has been reduced from Rs.50 lakh to Rs.25 lakh. Further, the lock-in requirements of investment made by angel funds in the venture capital undertaking has been reduced from three years to one year.

Such funds have also been allowed to invest in overseas venture capital undertakings up to 25 per cent of their investible corpus in line with other Alternative Investment Funds (AIFs).

“This will greatly benefit start-ups looking for raising venture funding not just for the money but for the other value addition that raising money from a venture capital firm brings such as direction and mentorship from seasoned investors,” said Nishit Dhruva, managing partner, MDP & Partners, a law firm.

Unlisted NCDs

The regulatory watchdog has also permitted foreign portfolio investors (FPIs) – FIIs in common parlance – to invest in unlisted non-convertible debentures and securitised debt instruments of a public or private company based on the guidelines issued by the Ministry of Corporate Affairs (MCA).

Earlier, FIIs were allowed to invest in such securities only if it was issued by a company from the infrastructure sector.

Such investments, however, will be subject to a minimum residual maturity of three years and end use-restriction on investment in real estate business, capital market and purchase of land.

Exchange disclosure

The regulator also clamped down on agreements between company management personnel and shareholders that assure a certain compensation or share in profits to the employee.

SEBI has stated that all such agreements entered into during the last three years will have to be disclosed to the stock exchanges and companies will have to seek an approval from the public shareholders of the company.

Further, interested persons involved in the transactions will have to abstain from voting on the said resolution, the capital markets regulator said.

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Printable version | May 29, 2022 1:08:46 am |