SEBI Looking To Expand Investor Pool For Angel Funds

SUMMARY

The SEBI has proposed removing the 200-investor cap for angel funds

Now, private placements cannot be offered to more than 200 investors unless they are QIBs under the Companies Act

This move is expected to boost the engagement of wealthy investors, which strengthens funding for startups

Markets regulator Securities and Exchange Board of India (SEBI) is looking to expand the definition of qualified institutional buyers (QIB) by enabling angel funds to access a broader pool of accredited investors.

The SEBI, in its consultation paper published on February 21, further proposed removing the 200-investor cap for angel funds, where private placements so far limited investment opportunities for a startup to not exceed 200 investors under the Companies Act, 2013.

QIBs are institutional investors like mutual funds, banks, financial institutions, insurance companies, and foreign institutional investors (FIIs) who invest in securities that may not be available to retail investors.

With concerns to the investor’s financial health and investments, the proposal further plans to mandate angel funds in onboarding and offering investment opportunities only to accredited investors with strong risk appetite.

With this in place, SEBI mentioned that angel funds can be scaled up by attracting more investors who are independently verified possessing the necessary risk awareness and appetite, while staying in conformity with the regulatory guidelines.

SEBI has intimated that comments and suggestions on the proposal can be submitted until March 14.

This development comes days after the markets watchdog relaxed its mandates for alternative investment funds (AIFs) to hold their investments in dematerialised form. Further, SEBI noted investments made before July 1, will be exempted from this requirement, barring certain caveats.

On the other hand, SEBI has also been working on taking initiatives in implementing new technological measures to prevent unauthorised transactions in investors’ demat account.

Recently, the markets regulator suggested an authentication mechanism that requires the stock broking or trading applications to recognise a user’s unique client code (UCC), along with SIM and mobile devices, a few days ago.