M&A Critique
Alternative investment Angel Investor fund

Angels Enter India…!

On 21st May 2012, SEBI notified the Alternative Investment Fund (AIF) Regulations bringing all privately pooled investment funds under one roof (except Mutual Funds and Collective Investment Schemes). The said Regulations segregate AIFs into three categories with all the categories having different investment purposes, type of schemes and benefits.

With respect to these, SEBI vide its Notification dated 16th September 2013, amended the SEBI (Alternative Investment Funds) Regulations, 2012 (Regulations) to include ‘Angel Funds’ in the definition of Venture Capital Fund (VCF) under Category I Alternative Investment Funds (AIF) and provide a framework for their registration and regulation.

The Notification has introduced a new category of ‘Angel Funds’ within the definition of VCF under Category I- AIF, as well as prescribed the registration requirements, investment parameters and other conditions for Angel Funds. Further, the Notification also makes provisions for obtaining in-principle approval by the applicants.

What is an Alternative Investment Fund?

Alternative Investment Fund means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which –

(i) is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and

(ii) is not covered by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.



Chapter IIIA relating to Angel Funds has been added after the existing Chapter III of the Alternative Investment Fund (AIF) Regulations 2012. The features of the Angel Funds are as follows:

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Alternative Investment Fund Regulations


Angel Fund” means a sub-category of Venture Capital Fund under Category I- Alternative Investment Fund that raises funds from angel investors and invests in accordance with the Regulations.

“Angel Investor” means any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,

  • an individual investor who has net tangible assets of at least INR 2 crores excluding the value of his principal residence, and who:
  1. has early stage investment experience, or
  2. has experience as a serial entrepreneur, or
  • is a senior management professional with at least ten years of experience;
  • a body corporate with a net worth of at least INR 10 crores; or
  • an Alternative Investment Fund registered under these regulations or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.

Note: For the purpose of this clause, ‘early stage investment experience’ means prior experience in investing in start-up or emerging or early-stage ventures and ‘serial entrepreneur’ means a person who has promoted or co-promoted more than one start-up venture.


  • The provisions for registration of Angels Funds would be same as the provisions defined for other funds falling under these regulations.
  •  An AIF already registered under these Regulations may apply for conversion into Angel Funds provided the AIF has not made any investments earlier and it would be considered as a fresh registration.


  • Units can be issued only to angel investors for raising funds
  • An angel fund shall have a minimum corpus of INR 10 crores.
  • An Angel Investor shall make an investment of minimum INR 25 lacs up to a maximum period of 3 years in Angel Funds


  1. Angel funds are allowed to invest only in venture capital undertakings (VCU’s) which:
  • have been incorporated during the preceding three years from the date of such investment;
  • have a turnover of less than INR 25 crores;
  • not promoted/sponsored by or related to an industrial group whose group turnover exceeds INR 300 crores;
  • not companies with family connection with any of the angel investors who are investing in the company.
  1. Investment by an angel fund in any VCU cannot be less than 50 lac rupees and shall not exceed 5 crore rupees.
  2. Lock in period for investments by an angel fund in VCU’s is 3 years.
  3. Angel funds cannot invest in associates.
  4. Investments by Angel Funds in one VCU shall not exceed 25% of the total investments under all its schemes.


The Angel Funds can launch schemes after filing a Memorandum 10 days prior to the launch of the Scheme with SEBI for which no fees would have to be paid. Also, a scheme of an Angel Fund should be restricted to maximum 49 Angel investors.


Units of angel funds are not permitted to be listed on any recognized stock exchange.


  • The sponsor should ensure that the angel investors satisfy the conditions to qualify as angel investors.
  • The manager/sponsor shall have a continuing interest in the angel fund of not less than 2.5% of the corpus or 50 lac rupees, whichever is less
  • The manager of the angel fund should obtain an undertaking from every angel investor proposing to make an investment in a VCU, confirming his approval for such an investment, prior to making such an investment.


The revised norms for angel investors for providing funding to companies at their initial stages would encourage entrepreneurship in the country and open financing sources for small start-ups. The introduction of angel funds aims to provide Indian entrepreneurs and expanded access to capital. It is a welcome move to encourage entrepreneurship and finance small businesses by way of notifying new norms for angel investors, who provide funding to companies at their initial stages. Also, the lock in period of 3 years might prove as an advantage for small businesses.

SEBI should be commended for recognizing angel funds as a distinct asset class. Further, the parameters for investor eligibility seem to have been introduced with due regard to the risk weight that SEBI attaches to angel investments.

 Although, angel investments have been prominent in India from past many years, but still they were lacking specific regulations, with which they can now put their steps into the system. The new guidelines have brought in more structure to Angel funding but more compliances too.

“For the first time, the FM seems to believe that India will grow – not so much by supporting big business houses like the Ambanis and the Tatas, but by supporting young entrepreneurs. This is a welcome shift,” said Mahesh Murthy, Venture Capitalist, co-founder of Seedfund.

On the flip side, the regulation demanding approval from all investors may lead to complexities and delays in the process of investment as it would be hard to get approvals from all investors. Further minimum investment criteria per investor of Rs 25 Lacs will restrict this new opportunity only for HNI’s. Compulsory exit to them after a period of three years, in any case, may go against optimum returns to them.





M & A Critique