Angel Funds
Chapter III-A - Angel Funds
Regulation 19A. Definitions
19A.
The definitions in this Chapter apply only for the purposes of this Chapter.
If the context requires a different interpretation, then:
The different interpretation with respect to that context will be applicable.
Every term defined in this Chapter carries the meaning specifically assigned to it.
The defined term includes all related forms of the word.
Different grammatical forms of the same word have the same meaning.
Similar or related expressions are interpreted in line with the defined term.
The definition applies consistently, even if the exact wording changes.
19(1).
An Angel Fund is a sub-category of Category I Alternative Investment Fund (AIF).
It raises money only from accredited investors.
It must invest its funds in accordance with the provisions of this Chapter.
19(2).
An Angel Investor is an accredited investor who invests in an Angel Fund.
It also includes the key management personnel (KMP) of the Angel Fund or its Manager, if they invest in the Angel Fund.
The investment must be made in an Angel Fund.
19(3).
Related Party has the same meaning as given under Regulation 2(1)(zb) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
The definition is not provided separately in this Chapter.
Whenever the term "Related Party" is used, it should be interpreted according to the SEBI (LODR) Regulations, 2015.
Regulation 19B. Applicability
19B(1).
This Chapter applies to Angel Funds.
It also applies to the Managers of Angel Funds.
It applies to the Sponsors of Angel Funds.
It applies to Angel Investors.
It also governs the investments made by Angel Funds.
Applicability of the 2025 Amendment Regulations to Existing Angel Funds
The following provision is an exception or additional rule to the main provision regarding the applicability of this Chapter.
It applies specifically to Angel Funds that were registered before the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2025 were notified.
Registration under the earlier version of the AIF Regulations does not exempt these Angel Funds from the 2025 amendments.
The provisions introduced by the 2025 Amendment Regulations will also apply to these existing Angel Funds.
However, the amendments may not apply automatically or in the same manner as they apply to Angel Funds registered after the amendments came into force.
The Board (SEBI) has the authority to determine how these amended provisions will apply to Angel Funds that were already registered.
SEBI may prescribe the manner of implementation, including:
Transitional requirements.
Compliance timelines.
Exemptions or relaxations, if any.
Any other implementation framework considered necessary.
Existing Angel Funds must comply with the 2025 amendments in the manner specified by SEBI, through circulars, guidelines, or other directions.
19B(2).
As a general rule, all provisions of the SEBI (Alternative Investment Funds) Regulations apply to:
Angel Funds.
Sponsors of Angel Funds.
Managers of Angel Funds.
Angel Investors.
However, certain provisions are specifically excluded and do not apply to Angel Funds.
Provisions Specifically Excluded
The following provisions of the AIF Regulations are not applicable to Angel Funds:
Regulation 10
Clause (a).
Clause (b).
Clause (c).
Clause (d).
Clause (f).
Regulation 12 (Entire Regulation).
Regulation 14 (Entire Regulation).
Regulation 15(1)
Clause (a).
Clause (c).
Clause (da).
Clause (e).
Regulation 16
Clause (a) of sub-regulation (1).
Entire sub-regulation (2).
Regulation 17 (Entire Regulation).
Regulation 18 (Entire Regulation).
Regulation 20(21).
Applicability of SEBI Circulars and Guidelines
The guidelines and circulars issued by SEBI under the AIF Regulations also apply to:
Angel Funds.
Their Sponsors.
Their Managers.
Angel Investors.
Exception to the General Rule
The above provisions, guidelines, and circulars apply only if:
The context does not require a different interpretation; and
Their application is not inconsistent (repugnant) with the special provisions contained in this Chapter governing Angel Funds.
So:
If a provision fits naturally with the Angel Fund framework, it will apply.
If applying a provision would conflict with a specific rule contained in the Angel Fund Chapter, the special provisions of this Chapter will prevail.
Therefore, in case of any inconsistency, the Angel Fund-specific provisions override the general AIF Regulations.
Explanation:
Application of Scheme-Level Provisions to Angel Funds
Under the AIF Regulations, many provisions are applicable to a scheme of an Alternative Investment Fund.
For Angel Funds, those scheme-level provisions are treated as applying to the entire Angel Fund.
In other words, wherever the AIF Regulations refer to a scheme, it should be read as referring to the Angel Fund itself, unless the regulations expressly provide otherwise.
This is because an Angel Fund is regulated at the fund level for the purposes of this sub-regulation.
The rule avoids the need to interpret or modify every scheme-related provision separately for Angel Funds.
However, this is not an absolute rule.
If any provision of the AIF Regulations specifically states that it is to be applied differently to Angel Funds, that specific provision will prevail.
Therefore, specific provisions override this deeming rule wherever SEBI has expressly provided otherwise.
Regulation 19C. Registration of Angel Funds
19C(1).
Any person intending to establish an Angel Fund may apply for registration with SEBI.
The application for registration must be made in accordance with Chapter II of the SEBI (Alternative Investment Funds) Regulations.
(The following is not in Act)
Chapter II lays down the registration framework applicable to Alternative Investment Funds, including:
Eligibility conditions.
Registration requirements.
Application procedure.
Documents to be submitted.
Information to be furnished.
Grant or rejection of registration by SEBI.
An applicant seeking registration as an Angel Fund is not exempt from the general registration requirements under Chapter II.
The applicant must first satisfy the requirements prescribed under Chapter II and, in addition, comply with the special provisions applicable to Angel Funds under this Chapter.
Registration as an Angel Fund is therefore governed by:
The general registration provisions contained in Chapter II; and
The specific provisions relating to Angel Funds contained in this Chapter.
19C(2). Omitted.
Regulation 19D. Investment in Angel Funds
19D(1).
An Angel Fund can raise funds only from accredited investors.
It cannot accept investments from non-accredited investors.
The term "accredited investor" refers to an investor who has been recognized as meeting the eligibility criteria prescribed under the SEBI framework.
Funds must be raised only by issuing units of the Angel Fund to investors.
A unit represents the investor's ownership or beneficial interest in the Angel Fund.
Angel Funds cannot raise money through any other mode unless permitted under the AIF Regulations.
The process of issuing units must be carried out in the manner specified by SEBI (the Board).
SEBI may prescribe the procedure, conditions, documentation, disclosures, operational requirements, and other compliance requirements for the issuance of units.
Since the provision uses the words "from time to time," SEBI may update or modify these requirements through:
Circulars.
Guidelines.
Notifications.
Directions.
Angel Funds must comply with the latest requirements issued by SEBI, not just those existing when the Fund was registered.
Investment by Key Management Personnel (KMP) of an Angel Fund or its Manager
The Key Management Personnel (KMP) of an Angel Fund are permitted to invest in the Angel Fund.
The KMP of the Manager of the Angel Fund are also permitted to invest in the Angel Fund.
Such investment by the KMP is expressly permitted under the AIF Regulations.
The provision recognizes that individuals responsible for managing or overseeing the Angel Fund may also participate as investors.
By investing in the Angel Fund, the KMP's interests may be aligned with those of the other investors.
The investment by KMP remains subject to the other applicable provisions of the AIF Regulations and any conditions prescribed by SEBI.
19D(2).
There is no prescribed minimum investment amount for an Angel Investor investing in an Angel Fund.
An Angel Investor is not required to invest a minimum sum to become an investor in an Angel Fund.
The minimum investment requirements that may apply to other categories of Alternative Investment Funds do not apply to investments made by Angel Investors in Angel Funds.
The amount invested by an Angel Investor may vary depending on:
The terms of the Angel Fund.
The investment opportunity.
Any commercial arrangement between the Angel Fund and the Angel Investor.
The exemption applies only to investments made by an Angel Investor in an Angel Fund.
Although there is no regulatory minimum investment amount:
Angel Investors must continue to satisfy all other eligibility requirements applicable under the AIF Regulations, including being an Accredited Investor.
19D(3).
An Angel Fund can raise funds only through private placement.
It cannot raise funds through a public issue or public invitation.
The fundraising must be carried out by issuing an Information Memorandum or a Placement Memorandum.
The document may be called by any other name, provided it serves the same purpose of offering units to prospective investors.
The Information Memorandum or Placement Memorandum contains the terms and conditions of the investment and provides relevant information about the Angel Fund.
The document enables prospective investors to make an informed investment decision by disclosing material information relating to the Angel Fund.
The issue of the memorandum must comply with the requirements prescribed under the AIF Regulations and any directions issued by SEBI.
Since the fundraising is through private placement, the offer is made only to eligible investors and not to the general public.
Applicability of the Companies Act, 2013 to an Angel Fund Formed as a Company
If an Angel Fund that is constituted as a company or incorporated as a company, then:
It must comply with the Companies Act, 2013, in addition to the SEBI (Alternative Investment Funds) Regulations.
Compliance with the AIF Regulations does not exempt the Angel Fund from complying with the Companies Act, 2013.
The Angel Fund will therefore be subject to all applicable provisions of the Companies Act, 2013, including those relating to:
Incorporation and corporate governance.
Management and administration.
Meetings of shareholders and the Board of Directors.
Maintenance of statutory records and registers.
Filing of returns and financial statements.
Audit and other statutory compliances.
The Companies Act, 2013 will apply only because of the legal form of the Angel Fund.
If the Angel Fund is constituted in another legal form (such as a trust or LLP), the Companies Act, 2013 will not apply merely by virtue of this proviso.
19D(4).
The Placement Memorandum must be filed with SEBI (the Board).
It must be submitted in the format specified by SEBI.
The Placement Memorandum cannot be filed directly by the applicant.
It must be filed through a Merchant Banker.
The Merchant Banker acts as the intermediary for submitting the Placement Memorandum to SEBI.
The Placement Memorandum must be filed at the time of filing the application for registration as an Angel Fund.
Therefore, submission of the Placement Memorandum forms part of the registration process for an Angel Fund.
The applicant is required to ensure that the Placement Memorandum complies with the format and disclosure requirements prescribed by SEBI before it is filed.
19D(5).
After the Placement Memorandum is filed, SEBI (the Board) may review its contents.
If SEBI identifies any issues or requires modifications, it may communicate its comments to the Merchant Banker.
SEBI's comments may relate to:
Disclosures.
Compliance with the AIF Regulations.
Corrections or clarifications.
Any other matter considered necessary by SEBI.
The comments are communicated to the Merchant Banker, who acts as the intermediary between SEBI and the Angel Fund.
The Merchant Banker is responsible for ensuring that all comments made by SEBI are incorporated into the Placement Memorandum.
The Placement Memorandum must be revised to reflect SEBI's comments before it is used for fundraising.
The Angel Fund cannot circulate the Placement Memorandum to prospective Angel Investors until SEBI's comments have been incorporated.
The Placement Memorandum is circulated to Angel Investors for the purpose of soliciting or raising funds.
19D(6).
An Angel Fund must on-board at least five Accredited Investors before it can declare its first close.
The minimum requirement is five Accredited Investors.
Only Accredited Investors are counted for this purpose.
The Angel Fund must complete the on-boarding process of these investors before declaring the first close.
"On-board" means admitting investors into the Angel Fund after completing all necessary:
Eligibility verification.
Documentation.
Regulatory and KYC compliances.
Subscription formalities.
The Angel Fund cannot declare its first close unless this minimum requirement is satisfied.
Understanding First Close
The First Close is the stage at which the Angel Fund formally closes its first round of fundraising and accepts the initial set of investors.
After the first close, the Angel Fund may commence its investment activities in accordance with the AIF Regulations and the terms of the fund.
Additional investors may be admitted in subsequent closings, if permitted under the fund documents and applicable regulations.
Manner Specified by SEBI
The first close must be declared in the manner specified by SEBI (the Board).
SEBI may prescribe:
The procedure for declaring the first close.
Documentation requirements.
Timelines.
Compliance requirements.
Any other operational conditions.
Since the provision uses the words "from time to time," SEBI may revise these requirements through:
Circulars.
Guidelines.
Notifications.
Directions.
19D(7).
An Angel Fund is required to declare its first close in the manner specified by SEBI.
If the Angel Fund fails to declare the first close in accordance with the prescribed requirements, certain consequences follow.
In such a case, the Angel Fund must refile its Placement Memorandum with SEBI (the Board).
The Placement Memorandum must be refiled before it can again be circulated to prospective Angel Investors.
The purpose of refiling is to obtain SEBI's review before the Angel Fund resumes:
Circulating the Placement Memorandum.
Soliciting or raising funds from Angel Investors.
The Angel Fund cannot continue fundraising on the basis of the earlier Placement Memorandum once it has failed to declare the first close in the specified manner.
While refiling the Placement Memorandum, the Angel Fund must pay the prescribed fee.
The amount of the fee is specified in the Second Schedule to the SEBI (Alternative Investment Funds) Regulations.
The requirement to refile makes sure that the Placement Memorandum remains current, compliant, and suitable for circulation before fresh fundraising activities are undertaken.
19E. Schemes
19E.
An Angel Fund is prohibited from launching any scheme.
It cannot launch a scheme for the purpose of raising or soliciting funds from Angel Investors.
It also cannot launch a scheme for making investments.
Unlike other Alternative Investment Funds, which may operate through multiple schemes, an Angel Fund is not permitted to launch separate schemes.
The restriction applies to both:
Raising funds from Angel Investors.
Deploying those funds into investments.
All fundraising and investment activities of an Angel Fund are carried out at the fund level, and not through individual schemes.
This provision reinforces the regulatory framework under which Angel Funds are regulated as a single fund, rather than as a collection of separate schemes.
19F. Investment of Angel Funds
19F(1).
An Angel Fund can invest only in startups.
The startup must satisfy the eligibility conditions prescribed under this provision.
The Angel Fund cannot invest in a startup if it is:
Promoted by a corporate group whose group turnover exceeds ₹300 crore.
Sponsored by a corporate group whose group turnover exceeds ₹300 crore.
Related to a corporate group whose group turnover exceeds ₹300 crore.
The relevant threshold is the group turnover, not merely the turnover of the individual startup.
If the aggregate turnover of the corporate group exceeds ₹300 crore, the startup becomes ineligible for investment by an Angel Fund.
The objective is that Angel Funds must invest in independent, early-stage startups, rather than businesses backed by large corporate groups.
Additional Investment in Existing Investee Companies
There is an exception to the general rule that Angel Funds can invest only in eligible startups.
An Angel Fund is permitted to make additional (follow-on) investments in its existing investee companies.
The investee company must already be part of the Angel Fund's investment portfolio.
The additional investment is allowed even if the investee company has ceased to qualify as a startup.
Therefore, a company does not become ineligible for further investment merely because it has outgrown its startup status.
This exception applies only to existing investee companies.
It does not permit an Angel Fund to make a new investment in a company that is no longer a startup.
The additional investment must comply with any conditions specified by SEBI (the Board).
SEBI may prescribe conditions relating to:
Eligibility for follow-on investments.
Investment limits.
Timing of the investment.
Disclosure and compliance requirements.
Any other operational or regulatory requirements.
Since the provision uses the words "from time to time," SEBI may modify or update these conditions through:
Circulars.
Guidelines.
Notifications.
Directions.
An existing investee company is a company in which the Angel Fund has already made an investment before it ceased it have the start-up status.
Explanation I.
For the purposes of this clause:
A Corporate Group includes a group of body corporates that are connected through ownership, control, or management.
The definition is inclusive, meaning it covers the situations specifically mentioned in the provision and may also include other similar relationships where applicable.
Corporate Group Includes
1. Companies Having the Same Promoter or Promoter Group
A group of body corporates having the same promoter or same promoter group constitutes a Corporate Group.
Even if the companies operate independently, they are treated as part of the same Corporate Group because they have common promoters.
2. Parent Company and Its Subsidiaries
A parent (holding) company and all of its subsidiary companies form a Corporate Group.
The relationship is based on ownership and control exercised by the parent company over its subsidiaries.
3. Companies Under Common Control
A group of body corporates in which the same person or same group of persons exercises control is regarded as a Corporate Group.
The common controlling person or group may exercise control through:
Shareholding.
Voting rights.
Management rights.
Contractual arrangements.
Any other legally recognized means of control.
4. Associates, Subsidiaries, and Holding Companies
A group consisting of:
Associate companies.
Subsidiary companies.
Holding companies.
is also treated as a Corporate Group.
A Body Corporate generally refers to a company or any other legal entity recognized as a separate legal person under applicable law.
Explanation II.
For the purpose of this clause:
Group Turnover means the combined total revenue of the entire Corporate Group.
It is not limited to the revenue of a single company within the Corporate Group.
Instead, the revenue of all entities forming part of the Corporate Group is aggregated to determine the Group Turnover.
The turnover of each company within the Corporate Group is added together to arrive at the combined total revenue.
Therefore, while determining whether the ₹300 crore threshold has been crossed:
The turnover of the entire Corporate Group is considered, and not just the turnover of the start-up receiving investment.
If the combined total revenue of the Corporate Group exceeds ₹300 crore, the start-up becomes ineligible for investment by an Angel Fund under this clause.
19F(2).
Every investment made by an Angel Fund in an investee company must be within the limits prescribed under this provision.
The minimum investment that an Angel Fund can make in an investee company is ₹10 lakh.
The Angel Fund cannot invest less than ₹10 lakh in any investee company.
The maximum investment that an Angel Fund can make in an investee company is ₹25 crore.
The Angel Fund cannot invest more than ₹25 crore in any investee company.
Therefore, the investment in each investee company must be at least ₹10 lakh but not more than ₹25 crore.
These limits apply per investee company.
Every investment made by the Angel Fund must comply with these prescribed minimum and maximum thresholds.
19F(3).
Every investment made by an Angel Fund in an investee company is subject to a lock-in period.
During the lock-in period, the Angel Fund cannot freely exit, transfer, or dispose of its investment, except as permitted under the applicable regulations.
The duration of the lock-in period is not prescribed in this provision itself.
Instead, the lock-in period will be specified by SEBI (the Board).
SEBI may prescribe:
The duration of the lock-in period.
The date from which the lock-in period begins.
Circumstances in which an early exit may be permitted.
Any exemptions or conditions applicable to the lock-in requirement.
The Angel Fund must comply with the lock-in period prescribed by SEBI before exiting its investment.
Since the provision authorizes the Board to specify the lock-in period, SEBI may revise or update the requirements through:
Circulars.
Guidelines.
Notifications.
Directions.
A lock-in period is the minimum period during which an investor is required to retain its investment.
During this period, the investment generally cannot be sold, transferred, or exited, except in accordance with the conditions prescribed by SEBI.
19F(4).
An Angel Fund is prohibited from investing in its associates.
The prohibition applies to any investment in an associate, irrespective of the amount or nature of the investment.
An Angel Fund cannot directly invest in an entity that qualifies as its associate under the applicable regulations.
This restriction is intended to prevent conflicts of interest between the Angel Fund and entities connected with it.
The prohibition applies throughout the operation of the Angel Fund unless an exception is specifically provided under the AIF Regulations.
An associate generally refers to a person or entity that has a significant relationship or connection with:
Angel Fund, its Sponsor, or its Manager, as defined under the AIF Regulations.
19F(5).
Every investment made by an Angel Fund in an investee company must be funded by at least two Accredited Investors.
A minimum of two Accredited Investors must contribute towards each investment.
An investment cannot be funded by only one Accredited Investor.
The contribution of the Accredited Investors is made through the Angel Fund, which in turn invests in the investee company.
The provision applies to each individual investment made by the Angel Fund.
Therefore, every investment in an investee company must satisfy the requirement of having contributions from at least two Accredited Investors.
The regulation prescribes only the minimum number of investors contributing to an investment.
It does not prescribe the proportion or amount that each Accredited Investor must contribute.
As long as at least two Accredited Investors contribute to the investment, the requirement under this provision is satisfied.
19F(6).
An Angel Fund is prohibited from accepting contributions for investment in an investee company from certain Angel Investors.
The restriction applies to Angel Investors who are a related party to the investee company.
If an Angel Investor is a related party of the investee company them:
The Angel Fund cannot accept that investor's contribution for making an investment in that company.
The prohibition applies only in relation to the specific investee company to which the Angel Investor is related.
The restriction applies only to the particular investee company to which the Angel Investor is a related party.
It does not prohibit the Angel Investor from investing in the Angel Fund altogether.
The Angel Investor may continue to participate in the Angel Fund's investments in other eligible investee companies.
This is permitted only if the Angel Investor is not a related party to those other investee companies.
The Angel Investor must also comply with all other applicable provisions of the AIF Regulations.
The term "Related Party" is not separately defined in this Chapter.
It has the same meaning assigned to it under the applicable SEBI regulations, as referred to in the definitions of this Chapter.
Accordingly, whether an Angel Investor is a related party must be determined in accordance with that prescribed definition.
Before accepting any contribution for a proposed investment:
The Angel Fund must verify whether the participating Angel Investor is a related party of the proposed investee company.
This verification is necessary to ensure compliance with the AIF Regulations.
If the Angel Investor is found to be a related party of the proposed investee company, the Angel Fund cannot accept that investor's contribution for that investment.
19F(7).
An Angel Fund is permitted to invest in the securities of companies incorporated outside India.
This means an Angel Fund is not restricted to investing only in Indian companies.
The investment may be made in the securities of foreign companies.
The term "securities" includes the instruments permitted under the applicable laws and regulations.
Conditions for Overseas Investments
The power to invest outside India is not unconditional.
Such investments are subject to the conditions or guidelines prescribed by the:
Reserve Bank of India (RBI); and
SEBI (the Board).
Both the RBI and SEBI may issue:
Conditions.
Guidelines.
Circulars.
Notifications.
Directions.
The Angel Fund must comply with all applicable requirements issued by both regulators before making an overseas investment.
Compliance with the guidelines of only one regulator is not sufficient if requirements have been prescribed by both the RBI and SEBI.
RBI and SEBI may modify, update, or replace the applicable conditions or guidelines whenever necessary or from time to time.
Accordingly, an Angel Fund must comply with the latest regulatory framework in force at the time of making the overseas investment.
19G. Obligations of Sponsors and Managers of Angel Fund
19G(1).
The Manager or Sponsor of an Angel Fund must maintain a continuing interest in each investment made by the Angel Fund.
The continuing interest must be maintained throughout the investment, and not merely at the time the investment is made.
The requirement applies to every individual investment of the Angel Fund.
Minimum Continuing Interest
The continuing interest must be at least 0.5% (half percent) of the amount invested in the investee company.
Alternatively, the continuing interest must be at least ₹50,000.
The applicable minimum is whichever is higher between:
0.5% of the amount invested; or
₹50,000.
Accordingly, the Manager or Sponsor must contribute at least the higher of these two amounts towards each investment.
Restriction on Mode of Contribution
The required continuing interest cannot be satisfied by waiving management fees.
In other words, the Manager or Sponsor must make an actual investment in the Angel Fund's investment.
Merely foregoing or reducing management fees does not count as the required continuing interest.
19G(2).
The Manager shall obtain the prior approval of an Angel Investor before accepting that investor's contribution for investment in an investee company.
Accordingly, the Manager cannot accept or deploy an Angel Investor's contribution into an investee company without first obtaining the investor's approval for that specific investment.
The approval must relate to the particular investee company in which the Angel Fund proposes to invest.
Example
An Angel Fund identifies ABC Technologies Pvt. Ltd. as a potential investment.
Before accepting ₹50 lakh from Investor A for investment in ABC Technologies, the Manager seeks Investor A's approval.
Only after Investor A approves the proposed investment can the Manager accept the contribution and invest it in the company.
19G(3).
The Manager shall disclose every investment opportunity to all Angel Investors of the Angel Fund.
The Manager shall also offer every investment opportunity to all Angel Investors.
Accordingly, the Manager cannot selectively offer an investment opportunity to only a few Angel Investors while excluding others.
Example
An Angel Fund identifies XYZ Robotics Pvt. Ltd. as a potential investment.
The Manager must communicate the investment opportunity to all Angel Investors of the fund.
The Manager cannot offer the opportunity only to Investors A and B while excluding Investors C and D.
19G(4).
The Manager shall disclose a defined methodology for allocating investments among Angel Investors.
The methodology must be disclosed in the Placement Memorandum of the Angel Fund.
The methodology should explain how an investment opportunity will be allocated among those Angel Investors who have approved the proposed investment.
Only the Angel Investors who have given their approval for a particular investment are considered for allocation.
The allocation must be carried out in accordance with the methodology disclosed in the Placement Memorandum.
The methodology and the allocation process must also comply with the manner specified by SEBI from time to time.
Example
An Angel Fund identifies ABC Technologies Pvt. Ltd. as an investment opportunity.
Out of 10 Angel Investors:
6 approve the investment.
4 choose not to participate.
The Placement Memorandum states that investments will be allocated proportionately based on the amount committed by the participating investors.
The Manager must allocate the investment using this disclosed methodology.
The Manager cannot adopt a different allocation method or favour certain participating investors unless it is consistent with the disclosed methodology.
19G(5).
The Manager shall accept contributions only from those Angel Investors who have approved the proposed investment in the investee company.
Angel Investors who have not approved the investment cannot be required to contribute towards that investment.
The acceptance of contributions must be carried out in accordance with the allocation methodology disclosed in the Placement Memorandum.
Accordingly, the Manager cannot accept contributions in a manner that is inconsistent with the disclosed methodology.
Example:
An Angel Fund identifies ABC Technologies Pvt. Ltd. as an investment opportunity.
Out of 10 Angel Investors:
7 approve the investment.
3 do not approve.
The Placement Memorandum provides that investments will be allocated proportionately among the participating investors.
The Manager shall accept contributions only from the 7 participating Angel Investors.
The amount contributed by each shall be determined in accordance with the disclosed allocation methodology.
19G(6).
Each Angel Investor shall have rights in a particular investment of the Angel Fund in proportion to the amount contributed by that investor towards that investment.
The proceeds arising from that investment shall also be distributed among the participating Angel Investors in proportion to their respective contributions.
Accordingly:
An Angel Investor who contributes a larger amount towards a particular investment will have a proportionately greater economic interest in that investment.
That investor will receive a correspondingly larger share of the returns.
This principle of pro-rata allocation applies to both the ownership interest in the investment and the distribution of proceeds.
However, this rule is subject to any exceptions that may be specified by SEBI from time to time through regulations, circulars, guidelines, or other directions.
Example
An Angel Fund invests ₹1 crore in ABC Technologies Pvt. Ltd.
The participating Angel Investors contribute:
Investor A – ₹50 lakh.
Investor B – ₹30 lakh.
Investor C – ₹20 lakh.
The company is later sold, and the Angel Fund receives ₹2 crore.
The proceeds are distributed as follows:
Investor A (50% contribution) – ₹1 crore.
Investor B (30% contribution) – ₹60 lakh.
Investor C (20% contribution) – ₹40 lakh.
Thus, each investor receives a share of the investment and its returns in proportion to their contribution.
19G(7).
Under circumstances , where an Angel Fund proposes to invest in:
An existing investee company; or
A related party of an existing investee company.
Then:
Before making such investment, the Manager shall disclose this fact to the Angel Investors.
The disclosure must be made at the time of seeking the Angel Investors' approval for the proposed investment.
Accordingly, the Angel Investors must be informed that the proposed investment is:
A follow-on investment in an existing portfolio company.
An investment in a related party of an existing portfolio company.
Example
An Angel Fund has already invested in ABC Technologies Pvt. Ltd.
Two years later, the Manager proposes to make an additional investment in ABC Technologies.
While seeking the Angel Investors' approval, the Manager must disclose that ABC Technologies is an existing investee company.
Subsidiary Investment
Instead of investing in ABC Technologies, the Manager proposes to invest in XYZ Innovations Pvt. Ltd., which is a subsidiary of ABC Technologies.
While seeking approval, the Manager must disclose that XYZ Innovations is a related party of an existing investee company.
19H. Prohibition of Listing.
The units of an Angel Fund cannot be listed on any recognised stock exchange.
Investors cannot buy or sell Angel Fund units through a recognised stock exchange.
The prohibition applies to all units issued by an Angel Fund.
An Angel Fund is therefore not permitted to seek listing of its units on any recognised stock exchange.
Since the units are not listed, they cannot be traded on the secondary market through a stock exchange.
Investors generally hold their units until they exit in accordance with the terms of the Angel Fund and the applicable AIF Regulations.
This restriction distinguishes Angel Funds from investment vehicles whose units are permitted to be listed and traded on recognised stock exchanges.
Units represent the ownership or beneficial interest of an investor in the Angel Fund.
They evidence the investor's contribution to the Angel Fund and corresponding rights under the fund documents.
