Pursuant to the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2013, Angel Funds have been recognised as a distinct sub-category under venture capital funds. The salient features of the said amendment regulations are as under:
Pursuant to the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 20133 , Angel Funds have been recognised as a distinct sub-category under venture capital funds. The salient features of the said amendment regulations are as under:
What is an Angel Fund?
A sub-category of Venture Capital Fund under Category I- Alternative Investment Fund that raises funds from “angel investors” and invests in accordance with the provisions of Chapter IIIA of the SEBI AIF Regulations, 2012.
Who is an Angel Investor?
Any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely, (a) an individual investor who has net tangible assets of at least Rs. 2 crore rupees excluding value of his principal residence, and who: (i) has early stage investment experience, or (ii) has experience as a serial entrepreneur, or (iii) is a senior management professional with at least ten years of experience; ‘early stage investment experience’ shall mean prior experience in investing in start-up or emerging or early-stage ventures and ‘serial entrepreneur’ shall mean a person who has promoted or co- promoted more than one start-up venture. (b) a body corporate with a net worth of at least Rs. 10 crores; or (c) an Alternative Investment Fund registered under the SEBI AIF Regulations, 2012 or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.
Investment in Angel Funds
Minimum Corpus
An Angel Fund must: (a) have a corpus of at least Rs. 10 crore and accept an investment of not less than Rs. 25 lakh from an Angel Investor up to a maximum period of 3 years.
Manner of raising funds
a) Angel fund shall raise funds through private placement by issue of information memorandum or placement memorandum, by whatever name called. b) Units of angel funds cannot be listed on any recognised stock exchange. c) Any scheme floated by an Angel Fund can have only up to 49 Angel Investors.
Investment by angel funds
Entities in which investments can be made Angel funds shall invest only in venture capital undertakings which: (a) have been incorporated during the preceding 3 years from the date of such investment; (b) have a turnover of less than Rs. 25 crores; (c) are not promoted or sponsored by or related to an industrial group4 whose group turnover 5 exceeds Rs. 300 crores; and (d) are not companies with family connection6 with any of the angel investors who are investing in the company. (e) Angel funds shall not invest in associates.
Lock-in
Investment by an angel fund in the venture capital undertaking shall be locked-in for a period of 3 years.
De minimis and Maximum limits
a) Investment by an angel fund in any venture capital undertaking shall not be less than Rs. 50 lakhs and shall not exceed Rs. 5 crores. b) Angel funds shall not invest more than 25% of the total investments under all its schemes in one venture capital undertaking.
Obligations of Sponsors and Managers of Angel Fund.
(1) The sponsor shall ensure that the angel investors fulfil the eligibility criteria as mentioned above. (2) The manager or sponsor shall have a continuing interest in the angel fund of not less than 2.5% of the corpus or Rs. 50 lakhs, whichever is lesser, and such interest shall not be through the waiver of management fees. (3) The manager of the angel fund shall obtain an undertaking from every angel investor proposing to make investment in a venture capital undertaking, confirming his approval for such an investment, prior to making such an investment.
Comments
The said amendment regulations give Angel Funds a distinct identity. The regulations ensure the authenticity of angel investments and the exhaustive definition of an Angel Investor ensures the ability of such investors to assume the high risks of these investments.
About Bulwark Solicitors
Bulwark Solicitors is a law firm pioneered by Solicitor Chirag Sancheti and Advocate Deep Shridharani. The firm has expertise in the areas of both Litigation and non-Litigation. Under the non-litigation Law practice, the firm practices in the areas of Corporate Law, Intellectual Property Law, Bankruptcy & Insolvency Law, Competition Law, Real Estate and Conveyancing and DTAA Advisory. Further, under Corporate Law area, we practice Company Law, Securities Law, Mergers and Amalgamations, Private Equity and Venture Capital Investment Transactions, Legal Due Diligence and Foreign Exchange Management Law.