Recently, Securities and Exchange Board of India
(“SEBI”) had notified amendments to SEBI (Alternative Investment Funds)
Regulations, 2012 (“AIF Regulations”) which seek to insert new provisions for “Angel
Funds”. The amendments will play an important role especially since they intend
to provide a framework for angel funds and angel investors. In this post, I am highlighting
the important features of the “Amendments”, i.e., Securities and Exchange Board of India (Alternative
Investment Funds) (Amendment) Regulations, 2013].
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What
are Angel Funds: According to the newly inserted regulation 19A, an
“Angel Fund” is a sub-category of Venture Capital Fund under Category I –
Alternative Investment Fund (“AIF”). The definition of “Venture Capital Fund”,
provided under Regulation 2(1)(z) of AIF Regulations, has been amended
accordingly.
As per the amendments, Angel Funds can only be
raised by issuing units to angel investors. The corpus of an Angel Fund
shall be of at least ten crore rupees. In
addition to this, up to a maximum of three years, Angel Funds shall accept an investment
of not less than Rs. 25 lakhs (Of Course, through angel investors only!)
Insertion
of Chapter III-A:
A
new chapter, ‘Chapter III-A’ or ‘Angel Funds’, has been inserted to AIF
regulations which enumerates the regulations, 19A to 19H, pertaining to Angels Funds. According to sub-regulation (2) of Regulation 19A, an ‘Angel
Investor’ means any person who proposes to invest in an Angel Fund. However,
for being competent to invest in an Angel Fund as angel investor, the person should
satisfy one of the conditions mentioned in sub-regulation (2) of Regulation
19A. These conditions are as follows:
(a) Individual Investor: An
individual investor should have a net
tangible assets of at least 2 crore with either (a) early stage investment
experience, or (b) experience as a serial entrepreneur, or (c) he is a senior
management professional with at least ten years of experience. While ‘early stage investment experience’ means prior experience in investing in
start-up or emerging or early-stage ventures, ‘serial enter entrepreneur’ means someone who has promoted or co-promoted
more than one start-up -venture.
(b) A body Corporate: If
the investment is sought to be made by a body corporate, such body should have a net worth of at least
ten crore rupees.
(c) An
Alternative Investment Fund, registered under these regulations or a Venture
Capital Fund registered under the SEBI
(Venture Capital Funds) Regulations, 1996, can also be an angel investor.
Registration
of Angel Funds [Regulation 19C]: For registering an
Angel Fund, an application may be made in accordance with the Chapter II of AIF
Regulations. Under Chapter II, no entity or person can act an as an Alternative
Investment Fund (“AIF”) without a registration. An already registered AIF,
which has not yet made any investment, can also make an application for its
conversion to an Angel Fund.
What
schemes can an Angel Fund launch? [Regulation 19E]:
So far as the launching of a scheme is concerned, an Angel Fund would be able
to launch a scheme only when it has filed the scheme memorandum with the
Securities and Exchange Board of India, at least 10 days prior to such launch. Apart from containing
information about the proposed investment under the scheme, an Angel Fund cannot have more than 49 Angel Investors in
a scheme. SEBI may provide its comments, if any, on the scheme and
such comments shall be incorporated by the applicant.
Where
can an Angel Fund make an Investment? [Regulation 19F]:
An Angel Fund can make an investment only in a venture capital undertaking[1] which
(i) incorporated during preceding 3 years, or (ii) have turnover of less than
25 crore ruppes, or (iii) are not promoted by or related to an industrial group
who turnover is more than 300 crore rupees. In a venture capital undertaking,
an Angel Fund cannot make an investment of less than 50 lakhs and not more than
5 crore rupees. The investment shall be locked
for a period of 3 years. Neither an Angel Fund can invest in associates[2]
nor can it invest more than 25% of its total investment in one venture capital
undertaking.
Obligations
of Sponsors and Managers of ‘Angel Fund’ [Regulation 19G]:
So far the obligations of sponsors and managers are in issue, they have to
ensure that ‘angel investors’ satisfy the conditions specified in
sub-regulation (2) of Regulation 19. In addition to having a continuous
interest in the Angel Fund,[3] they
shall also take an undertaking from the angel investor for confirming his
approval for investment.
Listing
is prohibited [Regulation 19H]: Units of an Angel
Fund are prohibited from listing on a recognised stock exchange
(The post highlights the key features of the amendments, the text of Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2013 can be downloaded from here. For queries, you can send an e-mail to abhinav.s@nujs.edu)
[2] Regulation 2(1)(c) of AIF
Regulations define an ‘associate’ “as
a company or a limited liability partnership or a body corporate in which a
director or trustee or partner or Sponsor or Manager of the Alternative
Investment Fund or a director or partner of the Manager or Sponsor holds,
either individually or collectively, more than fifteen percent of its paid -up
equity share capital or partnership interest, as the case may be”
[3] two and half percent of the
corpus or fifty lakh rupees, whichever is lesser
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