Who are angel investors?
Alternative Investment Fund or AIF means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.
AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.
Section 3 (1) of the SEBI (AIF) Regulations, 2012 provides for mandatory registration of the AIF for any entity or individual to operate.
Venture capital fund means an Alternative Investment Fund which invests primarily in unlisted securities of start-ups, emerging or early-stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property right based activities or a new business model and shall include an angel fund.
According to the SECURITIES AND EXCHANGE BOARD OF INDIA (ALTERNATIVE INVESTMENT FUNDS) REGULATIONS, 2012
Regulation 19A: “Angel investor” means any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,
For the purposes of this Chapter, unless the context otherwise requires, the terms defined herein shall bear the meanings assigned to them below, and their cognate expressions and variations shall be construed accordingly,-
(1) 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 provisions of this Chapter.
(2) “angel investor” means any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,
(a) an individual investor who has net tangible assets of at least two crore rupees excluding the value of his principal residence, and who:
(i) has early-stage investment experience, or
(ii) has to experience as a serial entrepreneur, or 21 Inserted by the SEBI (Alternative Investment Fund) (Amendment) Regulations, 2013, w.e..f 16-09-2013
(iii) is a senior management professional with at least ten years of experience;
Explanation: For the purpose of this clause, ‘early-stage investment experience’ shall mean prior experience in investing in start-up or emerging or early-stage ventures and ‘serial entrepreneur’ shall mean a person who has promoted or co-promoted more than one start-up venture.
(b) a body corporate with a net worth of at least ten crore rupees; or
(c) an Alternative Investment Fund registered under these regulations or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.
(3) “company with family connection” means:
a. if the angel investor is an individual,
i. any company which is promoted by such an individual or his relative; or
ii. any company where the individual or his relative is a director; or
iii. any company where the person or his relative has control, or shares or voting rights which entitle them to fifteen percent or more of the shares or voting rights in the company.
Explanation I: For the purpose of this clause, “relative” means a person as defined under section 6 of the Companies Act, 1956 (1 of 1956).
Explanation II: For the purpose of this clause, “control” shall have the same meaning as assigned to it under sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
b. if the angel investor is a body corporate,
i. any company which is a subsidiary or a holding company of the investor; or
ii. any company which is part of the same group or under the same management of the investor; or
Explanation: For the purpose of this clause, “part of the same group” and”under the same management” shall have the same meaning as assigned to it under regulation 23 of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.
iii. any company where the body corporate or its directors/partners have control, or shares or voting rights which entitle them to fifteen per cent or more of the shares or voting rights in the company.
Explanation: For the purpose of this clause, “control” shall have the same meaning as assigned to it under sub-regulation (1) of regulation 2 of theSecurities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
READ MORE: ANGEL INVESTMENT AND LAWS IN INDIA
ANGEL INVESTMENT FUNDS
Applicants can seek registration as an AIF in one of the following categories, and in sub-categories thereof, as may be applicable: [Ref. Regulation 3(4)]
Category I AIF:
- Venture capital funds (Including Angel Funds)
- SME Funds
- Social Venture Funds
- Infrastructure funds
Category II AIF
Category III AIF
Regulation 19D: Investment in angel funds
(1) Angel funds shall only raise funds by way of issue of units to angel investors.
(2) An angel fund shall have a corpus of at least ten crore rupees.
(3) Angel funds shall accept, up to a maximum period of three years, an investment of not less than twenty-five lakh rupees from an angel investor.
(4) Angel fund shall raise funds through private placement by the issue of information memorandum or placement memorandum, by whatever name called.
AIF SCHEMES
Can AIF launch schemes?
Yes. An AIF may launch schemes subject to the filing of placement memorandum with SEBI. Further, it may be noted that prior to the launch of the scheme, an AIF is required to pay Rs. 1 lakh as scheme fees to SEBI while filing the placement memorandum. Such fee shall be paid at least 30 days prior to the launch of the scheme. However, payment of scheme fees shall not apply in case of the launch of the first scheme by the AIF (other than angel fund) and to angel funds.
Regulation 19E: Schemes
(1) The angel fund may launch schemes subject to the filing of a scheme memorandum at least ten working days prior to the launch of the scheme with the Board: Provided that payment of scheme fees shall not apply to schemes launched by angel funds.
(2) Such scheme memorandum shall contain all material information about the investments proposed under such a scheme.
(3) The Board may communicate its comments, if any, to the applicant prior to the launch of the Scheme and the applicant shall incorporate the comments in the scheme memorandum prior to the launch of the scheme.
(4) No scheme of the angel fund shall have more than 22[two hundred] angel investors.
Substituted for the words ―forty nine‖ by the SEBI (Alternative Investment Funds) (Amendment) Regulations, 2016, w.e.f. 04-01-2017.
Regulation 19F: Investment by Angel Funds
19F. (1) Angel funds shall invest in venture capital undertakings which:
(a) complies with the criteria regarding the age of the venture capital undertaking/startup issued by the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry, Government of India vide notification no. G.S.R. 180(E) dated February 17, 2016, or such other policy made in this regard which may be in force;]
(b) have a turnover of less than twenty-five crore rupees;
(c) are not promoted or sponsored by or related to an industrial group whose group turnover exceeds three hundred crore rupees; and Explanation I: For the purpose of this clause, “industrial group” shall include a group of body corporates with the same promoter(s)/promoter group, a parent company and its subsidiaries, a group of body corporates in which the same person/ group of persons exercise control, and a group of body corporates comprised of associates/subsidiaries/holding companies. Explanation II: For the purpose of this clause, “group turnover” shall mean combined total revenue of the industrial group.
(d) are not companies with family connection with any of the angel investors who are investing in the company.
(2) Investment by an angel fund in any venture capital undertaking shall not be less than25[twenty-five] lakh rupees and shall not exceed five crore rupees.
(3) Investment by an angel fund in the venture capital undertaking shall be locked-in for a period of26[one year].
(4) Angel funds shall not invest in associates.
(5) Angel funds shall not invest more than twenty-five per cent of the total investments under all its schemes in one venture capital undertaking: Provided that the compliance to this sub-regulation shall be ensured by the Angel Fund at the end of its tenure.
(6) An angel fund may also invest in the securities of companies incorporated outside India subject to such conditions or guidelines that may be stipulated or issued by the Reserve Bank of India and the Board from time to time.
CERTIFICATE OF REGISTRATION
The certificate of registration of an AIF shall be valid till the AIF is wound up.
CAN PUBLIC BE INVITED TO SUBSCRIBE TO AIF
AIFs are privately pooled investment vehicles. AIFs shall raise funds through private placement by the issue of information memorandum or placement memorandum, by whatever name called. As an eligibility criterion for registration as an AIF, the applicant is required to be prohibited by its memorandum and articles of association/ trust deed/ partnership deed from making an invitation or solicitation to the public to subscribe to its securities. [Ref. Regulation 4(b)]
AUTHOR: The article is based on research work of Shubham Sengar, Intern of Indian Law Watch, Pursuing BA LL.B Student Correspondent, Gautam Budhha University, Greater Noida.
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