Indian market regulator SEBI has eased the rules for angel funds and how they put money into emerging businesses. The market watchdog has made several significant changes to the existing structure, making it easier for Indian angels to put money into startups — both within the country and abroad.
Okay so first off, the total number of angel investors allowed to invest in a single scheme has been raised from 40, all the way up to 200. This means that more angel funds or investors can now pitch in and back the same company. The Securities and Exchange Board of India has also lowered the minimum amount that can be invested in a startup to 2.5 million rupees. This is half the 5 million rupees that used to be the lower limit earlier.
Angel investors looking to pump money into startups abroad have also released a boost and under SEBI’s new guidelines, investors can out in up to 25 percent of their total funds in overseas start-ups.
Prominent angel investor Mahavir Pratap Sharma sounded extremely positive on this measure. He adds,
This is an excellent move and will go a long way in the startup ecosystem. This is really putting into action where ones intentions are. SEBI has actually showcased and acted upon the intent of the Modi government which is just not talk but actual action.
SEBI has also made it possible for angel funds to invest in start-ups that were incorporated five years before the date of investment. This is in contrast to the previous limit of three years.
The lock-in period has also been trimmed down to one year from three years. This move must be a particularly welcome one for investors who had bitterly opposed SEBI’s move to lay down a 3 year lock-in period back in 2013.
When SEBI first introduced guidelines regarding when an investor could make an exit from a company, the Indian Angel Network was amongst the first to argue that the lock-in period should remain flexible. IAN had said that the exit of an angel investor should depend solely on the investor and on the requirements of the company concerned — without the government stepping in with its constraints.
The move to introduce a one year lock-in period should definitely make investors happy. While it does not give them absolute flexibility, most angels are happy watching their investments mature for at least one year before deciding to continue or make an exit.
Finally, under SEBI’s new guidelines, listed companies that are owned by private equity (PE) firms will now have to seek shareholder approval before they can consider entering into performance-based compensation agreements with executives. This should definitely have an impact upon the large bonuses many top level executives can be seen drawing from the companies they are employed by.
Well SEBI’s new guidelines certainly appear to be investor friendly. Let’s hope that the decreased lower limit and faster exits lead to a resurgence in the Indian startup ecosystem.