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In a consultation paper, SEBI has proposed that angel funds should receive investments only from accredited investors. Angel funds are category I AIF which invest in early stage of start-ups.
SEBI believes that accredited investors have a better understanding of risks and returns associated with financial products.
In addition, SEBI has proposed that angel funds can have up to 200 accredited investors.
Let us look at other major proposals:
- Accredited investors should meet net worth requirements verified by a third party. Currently, accredited investors have net worth of Rs.7.50 crore of which Rs.3.75 crore has to be in financial assets and annual income of Rs.1 crore along with net worth of Rs.5 crore of which Rs.2.50 crore should be financial assets
- An angel fund should have investment from at least 5 accredited investors before the first close
- Employees, directors and fund managers of angel funds should have skin in the game. SEBI proposes that they should invest Rs.5 lakh in their angel funds
- SEBI proposes doing away with minimum investment and commitment period. Currently, angel funds have the minimum investment of Rs. 5 crore and commitment period of five years
- Angel fund can make a minimum investment deal of at least Rs.10 lakh. The maximum investment amount limit should not exceed Rs.25 crore
- SEBI proposes disclosure of related-party investments by angel funds to prevent conflict of interest
- SEBI proposes allowing follow-on investments in graduated startups
- Proposes reduction of the lock-in period to 6 months if exiting through a third-party sale
- Angel funds to disclose the allocation methodology in the PPM (Private Placement Memorandum)
- Maintain investor rights in each investment proportional to actual contributions
- SEBI plans to eliminate term sheet filings and clarify terminology, i.e., any reference to the word ‘scheme’ may be either removed or suitably modified to reflect an ‘investment’
- SEBI proposes audit requirements on AUM exceeding Rs. 100 crore threshold
- Existing funds will have to make changes within 1 year of applicability of these proposals
You can provide your feedback on this consultation paper by November 28 on this link.