Angel Investors – New Rules & Requirements for Angle Investors

Angel Investors are individuals who invest in start-ups and early stage companies. Apart from investing funds in the business, they give advice, industry exposure, and mentoring to founders to create successful companies. Most angel investors are  retired executives, business owners or high net worth individuals who have the knowledge, experience, connections and funds to  help start-ups. Angels need to meet the Securities Exchange Commission’s (SEC) definition of accredited investors.

Tightening of Rules for Angle Investors by Sebi

The Securities and Exchange Board of India (Sebi) has tightened the rules for angel investors with an aim to encourage entrepreneurship in the country by financing small start-ps. Sebi has said that angel funds, which are classified under venture capital funds, will raise money only from angel investors and all such individual investors will be required to have a net tangible asset of at least Rs. 2 crore. Corporate angel investors will be required to have Rs.10 crore net worth or be an alternative investment fund (AIF- a newly created class of pooled-in investment vehicles for real estate, private equity and hedge funds) registered with Sebi.

Requirements for Angle Investors

  • All angel investors must have an early stage investment experience as a serial entrepreneur or a senior management professional with at least 10 years of experience.
  • Continuing interest by sponsor/manager in the angel fund shall be not less than 2.5% of the corpus or Rs.50 lakh, whichever is lesser.
  • In order to ensure investment by angel funds is genuine, the SEBI has restricted investment by such funds between Rs 50 lakh and Rs 5 crore.
  • Angel funds can make investments only in those companies which are incorporated in India.
  • These funds needs to be invested in a firm for at least three years, can invest in companies not older than 3 years.
  • The regulator also stipulated that the fund must not have any family connection with the investee company
  • Investee company is also need to be unlisted
  • Investee company needs a maximum turnover of Rs 25 crore and this firm may not be related to a group with a revenue of more than Rs 300 crore.

Gain from Angel Investors

  • Angel Investors give capital to develop a product, to fund a marketing strategy, to grow the enterprise to the next level.
  • Angel investor becomes an important mentor.
  • They share their experience with the businesses in which they invest their money.

Loss from Angle Investors:

  • Founders could lose a big part of their business any time and could get fired from the company they have created.
  • Decision making of Founders for their company is also highly affected by Angle Investors