Angel investors are allowed to be registered as Alternative Investment Funds (AIFs) -- a newly created class of pooled-in investment vehicles for real estate, private equity and hedge funds, a gazette notification said.
In order to ensure investment by angel funds is genuine, the Securities and Exchange Board of India (Sebi) has restricted investment by such funds between Rs 50 lakh and Rs 5 crore.
Among other norms included, angel funds can make investments only in those companies which are incorporated in India. These funds needs to be invested in a firm for at least three years, can invest in companies not older than 3 years.
Further, investee company needs to be unlisted and with a maximum turnover of Rs 25 crore and this firm may not be related to a group with a revenue of more than Rs 300 crore.
Angel funds are required to have a a corpus of at least Rs 10 crore and minimum investment by an investor should be Rs 25 lakh.
"The manager or sponsor shall have a continuing interest in the angel fund of not less than two and half per cent of the corpus or Rs 50 lakh, whichever is lesser, and such interest shall not be through the waiver of management fees," Sebi noted.
The regulator also stipulated that the fund must not have any family connection with the investee company and that no angel fund scheme have more than 49 investors.
The new norms would help in encouraging entrepreneurship in the country by financing small start-ups at a stage where such start-up finds it difficult to obtain funds from traditional sources of funding such as banks, financial institutions among others.
Finance Minister P Chidambaram in his budget speech had announced that Sebi would frame guidelines for angel investor pools by which they can be registered under AIF venture capital funds (VCF).
Under Sebi guidelines, AIFs already have sub-categories such as Venture Capital Funds, Social Funds and SME Funds. Angel fund is likely to be a separate sub-category.
Regarding raising of funds by an individual investor, the person need to have an experience of 10 years and should possess assets of at least Rs 2 crore.
In case an investors is a corporate entity, it need to either have a net worth of Rs 10 crore or registered as AIF/ VCF with Sebi.