SEBI Regulations for Angel Fund Investments in India

The Indian startup ecosystem is a vibrant space brimming with innovation and potential. Fueling this growth engine are angel investors and angel funds, who provide crucial seed capital to early-stage startups. This article dives into the key regulations laid out by the Securities and Exchange Board of India (SEBI) for angel fund investments in India. 

Eligibility for Angel Fund Investments

SEBI guidelines specify the kind of startups that are eligible for angel fund investments. Here are some key points:

1. Independent Startups: The company must not be promoted or sponsored by, or related to, an industrial group with a group turnover exceeding INR 300 crore.
2. Avoiding Familial Conflicts: Angel funds cannot invest in companies where there’s a family connection between any of the investors and the startup founders. 

Investment Thresholds, Lock-in Period, Restrictions and Global Investment 

SEBI regulations further outline the minimum and maximum investment amounts, along with a lock-in period:

1. Minimum Investment: Angel funds must invest a minimum of INR 25 lakhs (INR 2.5 million) in any venture capital undertaking. 
2. Maximum Investment: The investment in any single startup cannot exceed INR 10 crore (INR 100 million). This encourages diversification across various promising ventures.
3. Lock-in Period: Investments made by angel funds in a startup are locked-in for a period of one year.
4. Restrictions on Investments: To ensure responsible investment practices, SEBI imposes specific restrictions:

1. Investing in Associates: Angel funds are not permitted to invest in their associates. 
2. Concentration Risk: Angel funds cannot invest more than 25% of their total corpus in a single venture.

5. Global Investment Opportunities:While the focus remains on nurturing Indian startups, SEBI allows angel funds to invest in the securities of companies incorporated outside India. However, such investments are subject to conditions and guidelines stipulated by RBI (Reserve Bank of India) and SEBI. This flexibility allows angel funds to explore promising global opportunities while adhering to regulatory frameworks.
6. Unlisted Units: It’s important to note that units of angel funds are not permitted to be listed on any recognized stock exchanges. This is because angel investments are typically illiquid, meaning they are not easily tradable like publicly traded stocks.

SEBI regulations play a critical role in fostering a healthy and transparent environment for angel fund investments in India. These regulations attract investors, protect startups, and ultimately contribute to the growth of the Indian startup ecosystem. 

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Jitesh Agarwal

Founder | jitesh@treelife.in

Leads the VCFO, finance tax, and regulatory functions at Treelife. Responsible for the firm’s non-operational growth and providing strategic advisory in GIFT City, helping clients navigate complex regulatory landscapes effectively.

Priya Kapasi Shah

Associate Partner | Tax & Regulatory | priya.k@treelife.in

Heads Treelife’s Financial Advisory practice, specializing in investment structuring, cross-border transactions, and tax and regulatory advisory. Also leads on AIF setups and advisory services for GIFT IFSC.

Rohit Gandhi

Senior Associate | Tax & Regulatory | rohit.g@treelife.in

Specializes in financial due diligence, valuations, business structuring, and income tax advisory. Contributes to the Financial Advisory team by helping startups and businesses make informed strategic decisions.