19 FINANCEOUTLOOKINDIADECEMBER, 2025and sophistication for high-risk startup investing. Supporting this shift, SEBI has simplified the documentation and issued a consultation paper to further streamline the accreditation.Balancing investor protection and accessThis accreditation requirement has generally been welcomed for strengthening investor protection and bringing greater discipline into early-stage investing. The general consensus is that funding a startup demands financial maturity, which accreditation helps verify.But critics say strict eligibility norms could shut out participation from smaller or first-time investors who possess expertise but may not meet a high wealth threshold, thereby narrowing India's active angel investor base. That said, many believe the reforms will increase clarity, standardization, and confidence in the system by ensuring alignment of investor capabilities with early-stage venture risks.What Angel Funds are and why they matterAngel Funds are a form of Category I AIF that specifically raises capital from accredited investors for investment in early-stage companies. Such funds pool resources to directly invest in high-potential businesses, without creating different schemes, so that their structures are made simple to reduce administrative intricacies.They operate under Section 19-A(1) of the SEBI AIF Regulations, 2012, which impose strict guidelines on compliance, investment ceilings, transparency, and investor protection. The Angel Funds provide a conduit for pooled early-stage capital that bridges the gap before venture capital firms step in, enabling young startups to access resources required for innovation, prototyping, and market entry.Key takeaways from SEBI's revised Angel Fund frameworkThe revised SEBI regulations bring far-reaching changes in everything from raising capital to fund operations and exits by investors. The key reforms are:1. Angel Funds can raise money only from accredited investorsUnder the new regulations, Angel Funds that get freshly registered shall raise funds only from 'Accredited Investors' defined under Regulation 2(1)(ab). Existing funds are allowed to continue operating until September 8, 2026. During this transitional period, they may onboard as many as 200 non-accredited investors but cannot accept fresh contributions beyond the deadline.2. First close timeline and minimum investor requirementThe first close for the Angel Funds has to be declared within 12 months of SEBI acknowledging its Private Placement Memorandum, and for this first close, at least five accredited investors are needed.3. Simplified investment structure and record maintenanceAngel Funds will continue to directly invest in startups without launching separate schemes. However, though the filing of term sheets has been done away with by SEBI, funds would need to maintain detailed internal records of each investment and its participating investors.4. Follow-on investment flexibilityAngel Funds may make follow-on investments in portfolio companies that have graduated beyond startup status if:The post-issue shareholding remains below the pre-issue level.The total follow-on investment does not exceed 25 crore.Contributions by original investors are made on a pro-rata basis.5. Overseas investments allowedAngel Funds are now allowed to invest in overseas companies, in tune with instructions from SEBI and RBI. More importantly, the 25% overseas investment limit is to be calculated based on total investments at cost as opposed to corpus, which more correctly reflects the actual level of fund activity.6. Clear allocation methodologyStarting from October 15, 2025, Angel Funds shall follow a well-disclosed, non-discretionary methodology for allocation of investment
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