SEBI eases investment norms for angel funding

The Securities and the Exchange board of India (SEBI) has eased the rules for angel funds that invest in early-stage companies, aimed at providing faster capital flow to startups in the country.

The market watchdog has made several significant changes to the existing structure including an increase in the number of angel investors allowed to invest in a single scheme to 200 from the current figure of 40. Notably, SEBI has also lowered the minimum amount that can be invested in a startup to Rs 2.5 million. This is half of the previous Rs 5 million that used to be the lower limit earlier.

Also, Angel Funds will now be allowed to invest in startups incorporated within five years, which was earlier capped at three years. The lock-in requirements of investment made by Angel Funds in the venture capital undertaking has also been reduced from three years to one year.

Moreover, Angel investors looking to pump money into startups abroad have also got a fillip as under SEBI’s new guidelines, investors can put in up to 25 percent of their total funds in overseas start-ups.

Speaking to ET, Saurabh Srivastava, co-founder of the Indian Angel Network said, “This is a significant change and will have a huge impact on angel funding in startups.”

Finally, under SEBI’s new guidelines, listed companies that are owned by private equity (PE) firms will now have to seek shareholder approval before they can consider entering into performance-based compensation agreements with executives. This should definitely have an impact upon the large bonuses many top level executives can be seen drawing from the companies they are employed by.