SEBI’s Board Amends the Regulatory Regime for Angel Funds

The Securities and Exchange Board of India (“SEBI”), at the 210^th meeting of its Board held in Mumbai on June 18, 2025, modified various rules relating to angel funds. This decision by SEBI’s Board (“Board Minutes”) is pursuant to consultation papers released by SEBI on November 13, 2024 and on February 21, 2025. The following are the salient features of SEBI’s new rules for Angel Funds (“New Rules”), which will come into effect only after the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“SEBI AIF Regs”) are formally amended to incorporate the new rules.

• Currently, to invest into an angel fund, an investor has to meet the eligibility threshold to be an “Angel Investor”, as defined in the SEBI AIF Regs. Under the New Rules, only Accredited Investors can invest in an Angel Fund. To facilitate investments by Accredited Investors in Angel Funds, the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR”) will be amended so that Accredited Investors will be included as Qualified Institutional Buyers for the limited purpose of investments into Angel Funds only.
• At present, the SEBI AIF Regulations provide that the amount invested by an angel fund in any venture capital undertaking shall not be less than twenty-five lakh rupees and shall not exceed ten crore rupees. These limits have been modified under the New Rules and the minimum threshold has been lowered to ten lakh rupees and the upper threshold has been increased to twenty-five crore rupees.
• The SEBI AIF Regulations provide that an angel fund shall not invest more than twenty-five per cent of the total investments under all its schemes in one venture capital undertaking. This ceiling has been removed altogether by the New Rules.
• Currently, the SEBI AIF Regulations provide that no scheme of an angel fund can have more than two hundred angel investors. This rule has been scrapped by the New Rules. However, it is unclear from the Board Minutes what the new ceiling will be, if any.
• At present, angel funds can invest only in startups. The New Rules enable follow on investments in an investee company which is no longer a start-up. The SEBI AIF Regs define a start-up as a private limited company or a limited liability partnership which fulfils the criteria specified by the Department of Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India to qualify as a startup, the entity should be within 10 years from the date of its incorporation or registration and its turnover must not exceed INR 100 crore in any financial year since its incorporation.
• Currently, it is required that an angel fund’s investment manager or sponsor shall have a continuing interest in the angel fund of not less than two and half percent of the corpus or fifty lakh rupees, whichever is lesser. This rule has been modified so that “skin in the game” is required for every investment by the angel fund. Under the new rules, the sponsor or investment manager should maintain a minimum continuing interest in each investment of the Angel Fund, at higher of 0.5% of investment amount or INR 50,000.

• Currently, the SEBI AIF Regulations provide that no scheme of an alternative investment fund (“AIF”) shall have more than one thousand investors. In the case of angel funds, a single scheme can have up to two hundred angel investors. Though the limit of two hundred angel investors has been scrapped by the New Rules, the Board Minutes have not mentioned a new ceiling. So, it is most likely that angel funds will be treated on par with other AIFs in this regard and can take on one thousand Accredited Investors for every scheme.
• Incredible but true, angel funds will soon be able to park their entire corpus in a single investee company. No other category of AIF has been offered this right. Even large value funds for accredited investors of Category I and Category II AIFs can only invest up to fifty percent of their investable funds in an investee company.
• Since only Accredited Investors can henceforth invest in an Angel Fund, we have compared the eligibility criteria for getting accredited against the existing eligibility criteria to be an angel investor.
• Individuals: To be an Accredited Investor, there should be:
• Annual income of at least two crore rupees; or
• Net worth of at least seven crore fifty lakh rupees, out of which not less than three crore seventy-five lakh rupees should be in the form of financial assets; or
• Annual income of at least one crore rupees and minimum net worth of at least five crore rupees, out of which not less than two crore fifty lakh rupees should be in the form of financial assets.

To be an Angel Investor, an individual should have net tangible assets of at least two crore rupees and also either early stage investment experience, or experience as a serial entrepreneur, or is a senior management professional with at least ten years of experience.

 For both Angel Investors and Accredited Investors, the value of the principal residence will be excluded.

• Hindu Undivided Family: To be an Accredited Investor, the net worth requirements are the same as for an individual. It is not possible for a Hindu Undivided Family to be an angel investor.
• Body corporates: To be an Accredited Investor, there should be net worth of at least fifty crore rupees. However, to be an angel investor, a body corporate would only need to have a net worth of ten crore rupees or more.
• Trusts: To be an Accredited Investor, there should be net worth of at least fifty crore rupees. However, for a family trust, the net worth requirements would be the same as for an individual. A trust cannot be an angel investor.
• Partnerships:  In case of a partnership firm set up under the Indian Partnership Act, 1932, each partner should independently meet the eligibility criteria for accreditation. A general partnership cannot be an angel investor.

The Board Minutes can be found here

SEBI’s consultation paper dated November 13, 2024 can be found here

SEBI’s consultation paper dated February 21, 2025 can be found here

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Akhil Ganatra, Advocate – Email – akhilganatra@elp-in.com

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