Angel Investment & the Law in India
From 2005 when India had six seed investment deal to 200 odd deals in 2014, the time has arrived where angel investment has carved its own niche in India. Entrepreneurship is the current ecosystem now and so is the need for angel investment. Angel investment is an investment for small business and entrepreneurs. Global Indians, corporate MNCs are coming forward to be part of the stream. Doing business in India from grass root level is the new change attracting young Indians with entrepreneurial acumen. The recent rule relaxation for Angel Funds has seen regulator SEBI turning a guardian angel to the nascent startup eco-system in India. SEBI recently amended its Alternative Investment Fund (AIF) regulations to give angel investors an easier passage- SEBI (Alternative Funds) Regulation, 2012 now known as SEBI (Alternative Investments Funds) (Amendments) Regulations, 2013 (“Regulations”). Alternative Investment Funds (“AIF”) does not include SEBI (Mutual Funds) Regulations, 1996; SEBI (Collective Investment Schemes) 1999.
Categories for Registration of AIFs
CATEGORY I: AIF
- Venture Capital Fund (Angel Fund)
- SME Funds
- Venture Capital Funds
- Infrastructure Funds
CATEGORY II: AIF (Helps to meet day to day operations)
CATEGORY III: AIF (Includes hedge funds or pipe funds)
Alternative Investment Funds are incorporated as trust/Company/LLP/Body Corporate. As per SEBI most of the AIFs are registered as a trust. AIF can launch schemes subject to Regulations. Once the registration is done, it remains valid till wound up.
Angel Fund is a category of Alternative Investment Funds. These funds are incorporated or established in India from sophisticated investors, as SEBI describes. The investor may be Indian or Foreigner. Angel Funds in India, are regulated by SEBI, which lumps them with venture capital funds, etc. under the umbrella regulations for Alternative Investment Funds (AIFs). Angel Funds raises investment from angel investors and who invest as per Chapter IIIA of the Regulations.
Angel funds require angel investment too. AIF can apply for registration under this category which has not made any investment by way of conversion to angel fund and fresh registration.
As per Regulation 19A (2) of the Regulation Angel investor means any person who proposes to invest in an angel fund should satisfy one of the following conditions, namely:
© Indian Law Watch
(a) Early stage investment experience shall mean a prior investment of investing in start up or emerging or early stage venture.
(b) Serial Entrepreneur means a person who has promoted or co-promoted one or more start up ventures.
(c) An angel investor is a body corporate then it would include a subsidiary or holding company of the investor or part of the group or under the same management of the investor. It can also mean a company or a where the directors or partners have control or shares or voting rights which entitle them to 15% or more of shares or voting rights in the company.
Important Angel Investors in India
1. Ratan Tata (Chairman, Emirates)
2. Anupam Gopal Mittal (Founder CEO, People Group)
3. T V. Mohandas Pai (Chairman, Global Manipal Education Services )
4. Rohit Bansal (Snapdeal CEO)
5. Vivek Chachra (Founding Partner, Eight Innovate)
If you are a wannabe entrepreneur, the new changes may make your capital raising just a little easier. While Bangalore is emerging as the start up capital but Mumbai is emerging as the Angel investor hub. The new regulations will help the start ups for mushrooming in a better manner. The investment process involves legal and financial documentations and advisory but with right advisory and investor in place, a start up can find the necessary ecosystem of its growth.
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