Startup industry welcomes SEBI's move to relax rules for angel investments
All stakeholders of the startup ecosystem â€“ entrepreneurs, investor and even lawyers - are welcoming the Securities and Exchange Board of India's decision to relax rules for angel investments in startups.
On Wednesday, SEBI eased rules for angel investments in young, fledgling firms and increased the upper limit for the number of angel investors in a scheme to 200 from 49, halved the minimum investment threshold to Rs 25 lakh and allowed investors to put money in firms that are up to five-years-old compared with three years currently.
"This is an excellent move and will make capital easily accessible and will increase liquidity in the market. Besides, the upper limit going to 200 means, startups have a long way to go before they run out on the number of angels and angles investing in overseas venture funds means, more global exposure to Indian investors. This could not have come at a better time," said Sandeep Aggarwal, founder, Shopclues and Droom, and an angel investor.
"I think it's a favorable move for overall angel investment scenario in India. This will invite more investors joining the angel investing league while getting to invest at lower ticket size and diversifying their portfolios with option to participate in overseas opportunities. This indeed is good news for angel funds who were earlier restricted by certain bylaws and norms," said Vineet Khurana, vice president, Chandigarh Angels Network.
Angel fund investments will now be locked-in in the startup for only one year, as opposed to the original three-year lock-in.
"This will incentivise angel fund investment in startups and will greatly help start up founders looking for small volume funding, without the constant interference of the investor a-la-venture fund investment," said Nishit Dhruva, managing partner, MDP & Partners.
Besides easing regulations for greater investments in startups, SEBI has also allowed Foreign Portfolio Investors (FPIs) to invest in unlisted NCDs, debt instruments.
Also, the minimum threshold for angel fund investment in a start-up from venture capital firms has been reduced to Rs 25 lakh from the current threshold of Rs 50 lakh.
"This will greatly benefit start-ups looking for raising venture funding not just for the money but for the other value addition that raising money from a venture capital firm brings such as direction and mentorship from seasoned investors and being able to package the start-up as an entity that has raised funding from a prestigious venture capital fund to boost investor confidence," said Dhruva.
Sebi's move followed a recommendation from a panel of experts chaired by Infosys co-founder NR Narayana Murthy.
"The standardization of the definition of a startup and the limits that apply to angel funding is a positive step for the startup ecosystem. To see the increased dialogue and participation of experienced industry veterans with the regulators via committees like the AIPAC (Alternative Investment Policy Advisory Committee) is also very encouraging. I am optimistic that this will boost the momentum in the early stage and help more founding teams converge upon the necessary resources from angels," said Pranav Pai, founding partner at 3one4 Capital (Mohandas Pai's family office).
Meanwhile, the steps will not only help Indian startups garner funds but will also encourage Indian angel investors to look for investment opportunities outside the country.
"The new regulations by SEBI are music for both, budding startups and angel investors. Accelerating investments beyond national borders will mark the onset of a new chapter in the local investment portfolio. Relaxing the investment limit along with increasing the number of participating angels is a moment to rejoice for upcoming and promising entrepreneurs, further broadening their horizon in the Indian startup ecosystem," said Dr Apoorv Ranjan Sharma, Co-founder, Venture Catalysts.
People Group founder Anupan Mittal, however, wasn't completely satisfied with the SEBI move. "Every positive movement is welcome but we are making only incremental changes," he said.
SEBI needs to work with other government agencies such as the tax department and come up with a cohesive and progressive policy that encourages startup creation and investment, he added.