In a recent board meeting (November 23, 2016), SEBI has relaxed and altered certain criteria relating to angel funds by amending the Alternative Investment Funds regulations. While a notification is yet to be issued in this regard, it appears that the changes largely bring about consistency and provide a breather for angel funds.
To summarize, in order to maintain consistency with the Companies Act 2013 and the definition of start-ups issued by DIPP, SEBI has amended the following:
(a) An angel fund shall have a maximum of 200 investors (previously a cap of 49); and
(b) It shall invest in a venture capital undertaking which was incorporated 5 years prior to the date of such proposed investment (as against 3 years, provided by the earlier provision).
The breather to angel funds is in the form of reductions in the following:
(a) Minimum investment ticket size from INR 50 lakh to INR 25 lakh; and
(b) Lock-in period of investment of one year instead of three years.
We are yet to see data captured in this regard that would answer (a) how many investments have been made by the angel funds? and (b) the return on such investments.
The most interesting amendment is the allowance to angel funds to invest up to 25% of their corpus in overseas venture capital undertakings. This provides flexibility in two ways: first, increased choices with a varied exposure for angel funds, and second, more options for companies that are being incorporated abroad with operations in India. But even with such options, whether angel funding appears lucrative, remains to be seen!