AIF Norms Don’t Specify a Provision to Extend 5-Year Period for Accepting Funds From Angel Investors u/r 19D(3) | SEBI

Informal Guidance No. NAFD/PoD/OW/2024/3685, Dated 24.01.2024

A Category I–VCF registered with the SEBI sought informal guidance as to whether the time limit provided under Regulation 19D(3) i.e., Angel funds shall accept, up to a maximum period of 5 years, an investment of not less than 25 lakhs from an angel investor, be extended further. The SEBI clarified that AIF norms lack provision relating to an extension of the 5-year period for accepting funds from angel investors under Regulation 19D(3).

The Category I- VCF registered with the SEBI sought informal guidance on the below-mentioned points:

Does Compliance with the Minimum Investment Requirement of INR 25 Lakhs apply to Start-ups when the Fund Mirrors Its Shareholding in the New Entity?

As per Regulation 19F(2) of AIF Regulations, investment in any Venture Capital Undertaking (VCU) by an Angel Fund must not be less than 25 Lakh rupees and not more than 10 crore rupees.

Further SEBI clarified that if the fund is receiving shares in another VCU or start-ups resulting from restructuring, where no new transaction of fresh investment is made, then the requirement of a minimum INR 25 Lakh may not be applicable.

What is the timeline for filing the revised Term Sheet, in case there are changes?

A term sheet is a written document that includes the important terms and conditions of a deal. The query raised here is whether the angel funds are obliged to file the revised term sheet for every minor change incorporated in it or can it be filed with relevant material changes.

The SEBI illuminated that angel funds can launch schemes subject to the filing of Term Sheet within 10 days of launching the scheme. The sheet must contain all material information regarding the scheme.

Angel funds are required to submit the details of only the material changes in the term sheet in the format specified. This revised term sheet is required to be filed as soon as the said change has happened and in any case, before making any investment pursuant to the revised terms of investment.

Is it Possible to Extend the 5-Year Time Limit specified in Regulation 19D(3)?

SEBI specified that angel funds shall accept an investment of not less than 25 lakhs from an angel investor for up to a maximum period of 5 years. This timeline cannot be extended further as no provision highlights the extension of the 5-year time limit in Regulation 19D(3).

Is it allowed to establish sub-schemes under existing schemes in full compliance with AIF Regulations?

Since AIF Regulations do not have any reference to the concept of sub-schemes, SEBI complying with the provisions of paragraph 8(iv) of the Informal Guidance Scheme, did not give any response to the above query.

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