AIF Registration

All about Angle Funds

What are Angle Funds?

Introduction

Angle Funds are funds where the money is pooled in by investor’s termed as ‘Angels’.  This pooled amount is then invested into startups in sizable amounts, this provides the investors better negotiating powers.

In India, Angel Funds are covered under the umbrella of Category I of Alternative Investment Funds which are regulated by Securities Exchange Board of India (Alternative Investment Funds) Regulations, 2012. Under Category I Angel Funds are summed up with venture capital funds, SME funds, social impact funds etc.

Who is an Angel Investor?

Angel investors are experienced and well-established investors who have an insight of the industry. In general course of business, normal venture equity funds or equity funds are not interested in committing their funds to start-ups and businesses in their formative stages. This is because there is no surety or track record regarding the returns from such startups. In such situations, Angel Investors play a key role as they undertake such startups with their funds as well as trust.

These angel investors can be individuals or companies with high net worth. While venture capital funds focused on investing in later stages of business, angel investor provides the much-needed support in the initial stages of the business.

In recent years, Securities Exchange Board of India has amended its Alternative Investment Fund (AIF) regulations through SEBI (Alternative Investment Funds) (Amendment) Regulations, 2016, introducing certain relaxations for angel funds, thus providing them an easier passage for operation.

Few of the key features of Angel Funds after such amendment are as follows:

Under AIF Regulations Angle Funds can be set up and they will have following key features:

1. Such funds can accept investment from maximum 200 investors, earlier it was limited to 49 investors.
2. Minimum investment amount in angel funds is Rs. 25 lakhs; earlier it was Rs. 50 lakhs. The maximum amount of investment cannot exceed Rs. 5 Crores.
3. Lock in the period required for Angel investor is reduced from 3 years to one year.
4. AIF are allowed to make investments in organizations incorporated in previous 5 years. Previously, this incorporation limit was set at 3 years.

Legal Definition of Angel Investor

Legally Angel Funds are regulated by AIF Regulations. As per these regulations, Angel funds Investors will be an investor willing to invest in Angel Funds and can be any of the following:

1. Any INDIVIDUAL whose has net tangible assets is not less than 2 Crore rupees. This will not include the value of his principal They are required to have any one of the following features:

• Early stage investment experience, this refers to prior experience in investing in start-up or emerging or early-stage ventures, this refers to any person who has earlier promoted or co-promoted more than one such ventures or
• Experience as a serial entrepreneur or
• The individual is a senior management professional and has experience of minimum 10 years.

2. Any BODY CORPORATE, which has a minimum net worth of 10 Crore rupees.
3. Any AIF registered under Securities Exchange Board of India (Alternative Investment Funds) Regulations, 2012 or any Venture Capital Fund registered under Securities Exchange Board of India (Venture Capital Funds) Regulations, 1999

How is an Angel Fund different from other AIFs?

Following are the points of difference between the two categories:

1. Corpus: Angel funds form a part of Category I AIF where corpus requirement is Rs. 10 Crore. On the other hand, Category II and II AIF are required to have a corpus of Rs. 20 Crores.
2. Minimum investment limit for a single investor is set at Rs. 25 lakhs for Angel Funds unlike other AIF where this limit is set at Rs. 1 Crore Rupees
3. The Sponsor/ Manager is required to have a continuing interest in the Angle Funds will be lower of the two; 2.5% of corpus or Rs. 50 lakhs. However, in case of other AIF, this requirement is way higher.