SEBI's latest move should help start-ups raise more funds
What's the story
In a major overhaul of its regulations, the Securities and Exchange Board of India (SEBI) is considering broadening the investor base for angel funds.
The proposed changes include redefining the term 'qualified institutional buyers' (QIB) and removing the current 200-investor limit.
This move is expected to bring in more affluent investors, thus increasing funding opportunities for start-ups.
Investor scrutiny
Addressing concerns about investor verification
Angel funds, which are a category of venture capital funds, pool money from investors to invest in start-ups.
However, there have been concerns over inadequate scrutiny of investors' risk appetite and the presence of too many investors without adequate financial muscle.
These could potentially violate private placement norms under the Companies Act, 2013.
To address this, SEBI has proposed only Accredited Investors (AIs) to invest in angel funds.
Regulatory changes
SEBI's proposal to redefine QIBs and remove investor cap
SEBI is now looking for public feedback on its proposal to redefine QIBs to include accredited investors, particularly for investment opportunities and allocations through angel funds.
The regulator has also proposed to remove the 200-investor limit for angel funds.
According to the Companies Act, private placements cannot be offered to over 200 investors unless they are QIBs.
This would allow all accredited investors in angel funds, possibly removing the 200-investor limit per company as AIs would now be QIBs.