With plans to offer a major boost to angel funding in startups, the SEBI (Securities and Exchange Board of India) has reportedly given indications to double the maximum investment limit by angel funds in venture capital undertaking to $1.5 Mn (INR 10 Cr) from the current $770.5 K (INR 5 Cr).
SEBI board has approved the amendments to Alternative Investment Funds (AIF) regulations with respect to “angel funds” after recommendations of its working group. However, the final decision is yet to be announced.
The working group comprising of angel networks, consultants and startups is looking to simplify certain provisions of AIFs to provide ease of doing business for angel funds.
Related Article: SEBI Sets Up Panel To Look At Ways To Attract Startups To Emerge ITP
At present, 398 AIFs are registered with SEBI, of which 114 are registered under Category I, including eight angel funds. Angel funds are aimed at encouraging entrepreneurship by financing small startups at an early stage where it is difficult to obtain capital from banks and financial institutions.
As Inc42 had earlier reported, here are the major amendments recommended for boosting the angel funding:
- The minimum investment by angel investor remains $38.5K(INR 25 Lakh).
- The minimum corpus size required for an angel fund to register with SEBI will now be $770.5K (INR 5 Cr)
- The maximum period of accepting funds from an angel investor has been raised to five years, from current three years.
- Instead of filing a memorandum with SEBI, angel funds will now be required to file a term sheet containing material information, as specified by the regulator within 10 days of launching the scheme.
- The provisions of the Companies Act will apply to the Angel fund if it is formed as a company.
These amendments are further expected to help improve the angel funding status in the Indian startup ecosystem. As reported earlier, 512 active angel investors participated in the Indian tech startup funding in 2017. This is a 22% decrease in comparison to 2016, according to Inc42 DataLabs’ Funding Report 2017.
Angel Funding And Angel Tax Provisions
With the growing discontent and protests from Indian startups, entrepreneurs and angel investors, the Department of Industrial Policy and Promotion (DIPP) is planning another exemption regarding angel tax, stating that startups founded before 2016 and with up to $1.5 Mn (INR 10 Cr) in angel funding will also be eligible for tax exemptions.
This is expected to benefit about 300 startups that received funding from the Angel Investors Network.
In conjugation with DIPP, after CBDT recently issued a circular instructing IT officials not to take any coercive measures to recover angel tax from startups, DIPP is also in talks with the Ministry of Finance to exempt individual angel investors from angel taxes as well.
Furthermore, the Income Tax Department has stayed the recovery proceedings of angel tax levied on companies that are recognised as startups by the Department of Policy and Promotion (DIPP).
After angel funding had plunged by 53% last year, the new provisions announced by SEBI are bound to give a major relief to Indian startups and their investors.
Update 1: Thursday, 19:00: The post earlier stated that “SEBI has doubled the maximum investment limit by angel funds in venture capital”. However, the post has now been corrected to suggest that the development is yet to be announced and SEBI has only given indications for the same.
[The development was reported by LiveMint]