It is a herculean task for companies (more so for startups) to induce investors to entrust their funds with them.

Due to the evolution of angel funding concept, the teething troubles in discovering an investor are somewhat assuaged for the startup companies. These days, it is a common practice for startup companies to generate funds via angel funding. 

Angel funding is a boon to the startups looking for funds and the tendency amid startups to depend more on angel funding for the financial investments is going upward.

Angel funds is the best source of finance for small startups in time of need and facing difficulties in obtaining finance from traditional sources (Banks and Financial Institutions). Such institutions are more likely to fund established (even fraudulent) corporates, but not startups.

In this backdrop, the Securities Exchange Board of India (SEBI) has identified the prominence of angel funds in providing financial investments to the startups fraternity and accordingly enhanced the investment limit by angel funds in venture capital undertakings to Rupees 100 million from the existing limit of Rupees 50 million – however, there has been no change in the requirement of minimum investment (Rupees 2.5 milion) by a single angel investor.

The decision is the reflection of the receipt of the recommendations made by the committee (Angel networks, Consultants and Startups as members) established by SEBI with the objective to simplify certain provisions relating to angel funds.

It is further expected that the maximum period of accepting funds from the angel investor would be heightened from the existing term of 3 years to 5 years.

SEBI is also likely to replace the necessity of filing of scheme memorandum by angel funds with the constraint of filing term sheet encompassing substantial matter as reckoned by the SEBI in this regard within 10 days of launching the scheme.

Another prospect is that SEBI will carve up the minimum corpus size required for an angel fund to register with SEBI to Rupees 50 million.

With serious implementation of the latest amendments with respect to angel funds will ensure that the association amid the angel funds and companies will get stronger doing a world lot of good to the startup ecosystem – facilitate startup companies to get investments from angel funds in a hassle free manner and angel funds to treasure right venture capitals to endow investments without much fuss. 

Research inputs by Paruchuri Baswanth Mohan