Sebi mulls proposal to raise upper investment cap to Rs 25 crore for angel funding

BENGALURU: Market regulator Sebi on Wednesday sought public consultation on reducing the minimum investment threshold for angel investments from Rs 25 lakh to Rs 10 lakh, whilst raising the maximum limit from Rs 10 crore to Rs 25 crore. The document welcomes public feedback on its proposals until November 28, aiming to enhance the regulatory structure for angel funds. The objectives include simplifying fundraising procedures, enhancing disclosure requirements, and ensuring clearer operational guidelines.
As a vital funding source for startups, Sebi's records show 82 registered angel funds as of March this year, with total commitments of Rs 7,053 crore and investments of Rs 3,343 crore in this category. Sebi has also raised concerns regarding the regulatory framework of angel funds. Sebi, in its latest notification, questioned if these funds should remain under the purview of alternative investment funds regulations.
The market regulator has identified gaps in operational clarity and investor protection concerns within the current framework, particularly regarding investment opportunities for investors with varying risk appetites. "The existing prudential norms and investment conditions also require revision to provide more flexibility and ease of operations. Considering these issues and the recent budget announcement of abolishing angel tax, a question arises," it said.
"This change is to reflect the growth of the angel ecosystem and the increasing interest in angel investments as an asset class,"Sebi said in its consultation paper, which incorporated recommendations from a working group of angel fund managers and industry participants. "It would be very beneficial for the ecosystem to relook at how angel funds should be run. Currently, regulations are restrictive and expensive and not necessarily meaningful. On the flip side, you also do not want hard-earned money being handed to angel funds operators that lack good intentions," Anand Lunia, founding partner at venture capital firm India Quotient, told TOI.
Lunia also suggested implementing a system to authenticate angel funds' performance metrics regularly. He highlighted the need for increased awareness amongst potential angel syndicate investors and advocated for a centralised database tracking fund performance to enhance transparency, noting the absence of comparison platforms like those available for mutual funds.