SEBI Looks to Boost Startup Funding, Plans to Ease Rules for Angel Funds

New Delhi: Looking to provide an impetus to the early-stage startup ecosystem, markets regulator SEBI plans to increase the maximum investment by angel funds in venture capital undertakings to Rs 10 crore from the current Rs 5 crore.

In this fast changing ecosystem, wherein angels are investing much higher amounts, such increase is needed to provide more opportunities to angel funds, regulatory officials said.

However, the minimum investment by an angel investor will continue to be Rs 25 lakh.

Further, SEBI plans to halve the minimum corpus size required for an angel fund to register with it to Rs 5 crore. The regulator is considering to raise the maximum period of accepting funds from an angel investor to five years from the present limit of three years, they added.

The move will provide angel funds more time to identify opportunities and invest in venture capital firms.

The issue will be discussed at the board meeting of the Securities and Exchange Board of India (SEBI) this week.

Angel funds, a sub-category of Alternative Investment Funds (AIFs), encourage entrepreneurship in the country by financing small startups at a stage where such firms find it difficult to obtain capital from traditional sources of finance such as banks and financial institutions.

In addition, angel funds offer mentoring to entrepreneurs as well as access to their own business networks.

Currently, 398 AIFs are registered with SEBI, of which 114 are registered under Category I, including eight angel funds.

In line with the Companies Act, the regulator is looking to amend SEBI (Registrars to an Issue and Share Transfer Agents) norms and Sebi (Banker to an Issue) regulations that will enable a registrar as well as banker to an issue to maintain records of books of accounts and documents for a minimum period of eight years after completion of the relevant transactions.

Besides, Sebi plans to provide an option to listed companies for distribution of cash benefits -- dividend of equity and preference shares as well as interest and maturity proceeds on debt instruments -- through the depositories in addition to the present system of distribution either directly by them or through the registrar to an issue and share transfer agents.

At present, there is a restriction on listed companies availing services of depositories for distribution of cash benefits.