The Securities and Exchange Board of India (SEBI) is likely to relax guidelines governing angel funds in the country.
The measures include allowing foreign portfolio investors (FPIs) to invest in unlisted, non-convertible debentures (NCDs) and debt instruments, two people directly familiar with the development said, requesting anonymity.
The regulator may also introduce regulations related to profit-sharing agreements between company founders and private equity (PE) funds
The announcements was made after Sebi board meeting on Wednesday in Mumbai.
Sebi is likely to halve minimum investment by an angel fund in startup from Rs 50 lakh to Rs 25 lakh. Sebi is also likely to allow angel funds to invest in five-year-old startups.
Sandeep Aggarwal, angel investor told,
“This is an excellent move and will make capital easier accessible and will increase liquidity in the market. Besides, the upper limit going to 200 means startups have long way to go before they run out on the number of angels and angles investing in overseas venture funds means, more global exposure to Indian investors. This could not have come at a better time and is whole heartedly welcomed.”
Current regulations allow an angel fund to invest in a company incorporated during the preceding three years from the date of investment. Also, to diversify risks, angel funds will be allowed to invest in foreign startups. Such investments can only be up to 25% of their corpus. The lock-in period for investments made by angel funds will also be relaxed from three years to only one year.
Experts say relaxations could boost angel funds and startups.
Angel funds are covered under Sebi’s alternative investment funds (AIFs) regulations, introduced by the regulator in 2012. An angel fund is a sub-category of venture capital funds, which come under Category-I AIFs.
Meanwhile, Sebi board is expected to introduce more checks and balances for PE firms entering compensation agreements with senior management or promoters of a listed company. Through such agreements, a PE investor agrees to share a part of its profits with promoters or key management personnel if a set of objectives are met. Usually, the objectives relate to company performance, financial or stock.
Although such agreements are common globally, such incentives can set off malpractices in order to achieve the targets. Therefore, Sebi is likely to ask companies to disclose all such agreements to shareholders and get their approval.