The move aims to allow Accredited Investors (AIs) to qualify as QIBs solely for investing in Angel Funds, a sub-category of Category I Alternative Investment Funds (AIFs).

Key highlights

• Inclusion of Accredited Investors as QIBs: SEBI suggests that Accredited Investors, who meet specific financial criteria and undergo third-party accreditation, should be recognised as QIBs for investing in Angel Funds. This would allow Angel Funds to onboard more sophisticated investors without violating private placement norms.
• Removal of the 200-Investor Cap: Currently, Angel Funds can have a maximum of 200 investors per investee company. SEBI proposes removing this cap, enabling funds to attract more capital for early-stage start-ups.
• Addressing Regulatory Gaps: The current framework allows Angel Funds to offer investment opportunities to large numbers of investors via web-based platforms, potentially contradicting private placement regulations. SEBI’s proposal seeks to streamline compliance by ensuring that only financially sophisticated investors participate.

Implications for AIF Investors

1. Increased Access to Angel Investments – With AIs being treated as QIBs, more investors with high-risk appetite can participate in start-up funding through regulated Angel Funds.

2. Potential for Higher Capital Flow to Start-ups – The proposed changes could significantly increase the pool of investors, providing greater funding avenues for early-stage ventures.

3. Regulatory Safeguards for Investors – Only investors who meet minimum financial criteria and pass accreditation checks will be permitted to invest, ensuring a higher degree of investor protection.