New Delhi, Feb. 24 -- The Securities and Exchange Board of India has proposed to allow angel funds to tap into a wider pool of investors for raising capital to invest in startups.
The capital markets regulator said in a consultation paper that it intends to remove the cap of 200 investors in an angel fund and tweak the definition of qualified institutional buyers (QIBs).
As per current regulations, the number of private investors in angel funds is capped at 200, after it was revised from 49 earlier. Removing this cap will allow angel funds to accept contribution from more investors, SEBI said.
The regulator also said it plans to change the definition QIBs to include "accredited investors" for the limited purpose of investing in angel funds.
QIBs include mutual funds, insurance companies, foreign portfolio investors, sovereign wealth funds, corporate bodies, family offices, banks, development financial institutions, provident funds and pension funds, among others.
Accredited investors typically include wealthy individuals, corporate bodies, family trusts, partnership firms and proprietorships that meet certain SEBI parameters related to annual income and net worth.
"If, for the purpose of angel funds alone, the definition of QIBs is expanded to include AIs (accredited investors) due to their better understanding of investment risks, angel funds can offer the investment opportunities to more number of discerning investors, thus increasing the funding avenues for startups through this route," SEBI said in its paper.
With this, angel funds would be able to attract more investments from verified investors with necessary risk and awareness, the regulator added.
However, SEBI added that this proposal is specifically with reference to investment in unlisted companies with no impact on the definition of QIBs in the context of public markets.
Published by HT Digital Content Services with permission from VC Circle.