Securities Exchange Board of India (SEBI) very recently notified amendments (Amendment(s)) to the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) to give effect to budget for FY 2013-14 on the angel investor pool. By way of the Amendment, a new sub-category has been created under Category I – Alternative Investment Funds (“AIF(s)”) called “Angel Funds” by inserting a separate Chapter III-A in the AIF Regulations. The key changes through the Amendments are as follows:

  1. Registration of Angel Funds: Angel Funds can register in accordance with Chapter II of the AIF Regulations. Further, the already registered AIFs may apply for conversion of its category into an Angel Funds.
  2. Raising funds: Angel Funds have been permitted to raise funds only from angel investors through private placement by issue of information memorandum or placement memorandum.
  3. Conditions for investments on Angel Funds: Angel Funds have been permitted to make investments only in start-ups / early stage companies and are therefore permitted to invest only in venture capital undertakings which:
    • are not more than 3 (three) years old;
    • have a turnover not exceeding INR 250,000,000 (Indian Rupees Two hundred fifty million);
    • are not promoted, sponsored or related to an Industrial Group whose group turnover is in excess of INR 3,000,000,000 (Indian Rupees Three billion); and
    • have no family connection with the investors proposing to invest in the investee company.
  4. Conditions imposed on Angel Investors: Certain conditions have been imposed on angel investors such as:
    • Individual angel investors are required to have early stage investment experience or experience as a serial entrepreneur or be a senior management professional with 10 years experience AND to have net tangible assets of atleast of INR 20,000,000 (Indian Rupees Twenty million); and
    • Corporate angel investors shall be required to have INR 100,000,000 (Indian Rupees One hundred million) net worth or be a registered AIF under AIF Regulations / Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.
  5. Minimum Corpus of Angel Funds: Angel Funds shall have a corpus of at least INR 100,000,000 (Indian Rupees One hundred million) (as against INR 200,000,000 (Indian Rupees Two hundred million)) for other AIFs.
  6. Minimum and maximum investment by an angel fund in an investee company: Investment in an investee company by an angel fund shall be not less than INR 50,000,000 (Indian Rupees Fifty million) and more than INR 500,000,000 (Indian Rupees Five hundred million) and shall be required to be held for a period of at least 3 (three) years.
  7. Launching of Schemes: An Angel Fund may launch schemes by filing the scheme memorandum at least 10 (ten) working days prior to launch of the scheme with SEBI in accordance with the rules laid down by SEBI in this regard.
  8. Lock-in: Investment by an Angel Fund in the venture capital undertaking shall be locked-in for a period of 3 (three) years.
  9. Maximum investment by an angel fund in one venture capital undertaking: Angel funds shall invest a maximum of 25% (twenty five) of the total investments under all its schemes in one venture capital undertaking.
  10. Continuing interest of member/ sponsor: The manager or sponsor shall have a continuing interest in the angel fund of not less than 2.5% (two and half percent) of the corpus or INR 5,000,000 (Indian Rupees Five million) whichever is lesser, and such interest shall not be through the waiver of management fees.
  11. Social Venture Funds: A minimum amount of INR 2,500,000 (Indian Rupees Two million and five hundred thousand) can be collected as grants by Social Venture Funds. However, no profits or gains shall accrue to the provider of such grants.
  12. Prohibition on listing: Units of angel funds shall not be listed on any recognised stock exchange.


The move by SEBI to recognise Angel Funds as a separate class of funds is a positive move. The key reasons for this believe are as follows:

  • Tax benefit: By recognising angel funds as a Category I AIF, it appears that the benefit of the 'pass - through' available only to Category I AIFs pursuant to AIF Regulations and the Finance Act, 2013 shall also extend to angel funds.
  • Sharp assessment of risk appetite of angel investors: The criterion for being an angel investor seems to have been introduced after a sharp assessment of making sure that angel investors understand the nature of their investment and have the requisite capacity to handle the outcome of such investments.
  • Ensuring that angel funds invest in start ups: Restrictions on investment avenues for angel funds seem to be reflective of plan for ensuring that angel funds invest only in start ups.

This update was released on 22 Sep 2013.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or for any assistance.

Legal Update Team
Advocates, Solicitors and Notaries
T: +91 22 40565252
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