[Editorial notes: SEBI issued guidelines for angel funding in India and one of the key recommendation is that angel funding shall be not less than Rs.50 lakh and not more than Rs.5 crore and shall be required to be held for a period of at least 3 years. Here is a guest article by Sharda Balaji, founder of Novojuris sharing her perspective on the same]
SEBI in its Board meeting yesterday decided that Angel Funds need to be treated ..well like angel funds!
SEBI (Alternative Investment Funds) Regulations, 2012 will now be amended to include Angel Funds as a sub-category to the Category I Venture Capital Fund. As of now, it is only the Category I Fund which is eligible for the pass-through status. By bringing in the Angel Fund as a sub-category under this, the tax benefits will now be available for the Angel Funds as well.
While this is in some part doing away with the Startup Tax that came in Finance Act 2012, we should not forget smaller investments that individuals make in the startups which may be at high premium given the IP or the potential of the startups. Clarity on tax impact on this kind of investment is still expected.
What is very heartening is creating some different criterion for the Angel Funds like the reduction of the corpus to Rs. 10 crores (it is Rs. 20 crores for other categories) and the ticket size of each LP is Rs. 25 lakhs (it is Rs.1 crores for others) and it is accepted over 3 year period instead of the LP paying it upfront. This is a big thumbs-up from me. I can foresee many more Angel Funds being set up. The one that I was supporting withdrew from the road-show because of the requirement of Rs. 1 crore ticket size from each LP.
The investment from the Angel Fund is capped at Rs. 5 crores and it would have been nice atleast at Rs. 10 crores since any Fund would like to do a follow-on round which helps startups succeed. Follow-on rounds are typically larger investment size.
It looks like SEBI has been advised that startups means less than 3 years of existence. Well, most use that as a metric (Microsoft BizSpark program for example).
I’m happy for now and really appreciative of the steps taken by SEBI.
[If you want to share your perspective on the SEBI announcement, please do get in touch with us.]