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Sebi revises regulatory framework for angel funds

Rediff Moneynews  

The capital markets regulator Sebi has permitted angel funds to onboard only accredited investors, while existing funds have been given time until September 8, 2026, to align with the new regime. During this transition, they may not offer investment opportunities to more than 200 non-accredited investors.Existing investors of such angel funds will be allowed to retain their holdings in line with the terms of the Private Placement Memorandum (PPM). Further, angel funds must secure at least five accredited investors before declaring their first close, which has to be completed within 12 months of Sebi taking the PPM of the angel fund on record. Existing funds yet to declare their first close must do so by September 8, 2026, failing which they will have to refile documents with the regulator.The regulator has allowed angel funds to make follow-on investments in companies that have ceased to be start-ups, subject to conditions. These include ensuring that post-issue shareholding does not exceed pre-issue levels and that total exposure to a single company, including follow-on investments, remains capped at INR 25 crore. Only existing investors in a company can participate in such follow-on rounds, in proportion to their earlier contribution.In addition, angel funds will now be recognised as a distinct Category I AIF, instead of being treated as a sub-category of venture capital funds.Compliance audits will be mandatory for funds with investments exceeding INR 100 crore, and all angel funds must provide investment-wise valuation and cash flow data to benchmarking agencies for performance comparisons.