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Angel Fund Guidelines: Helps Superangels, Keeps Out Smaller Investors – Capital Mind

SEBI has introduced new guidelines for Angel Funds. As I’ve said recently, this is an absolutely important requirement in order for startups to avoid the “Startup Tax” (, a tax regulation that classifies investment as “income” if it is at a premium to the “par” value of a share of a company. (Read the free Startup Tax e-Book) The tax laws allow angel funds to skirt this rule, but what an angel fund actually means was left to SEBI. And this is what SEBI has said, in simple terms: Angel funds a sub-category of SEBI AIF Cat-1, Like Venture Capital Funds with Only 25 Lakh Minimums The SEBI Alternative Investment Fund (AIF) regulation is what allows pools of capital to be used in India to invest in anything. AIFs include Venture Capital Funds (VCFs) as a Category 1 player. An Angel fund will be a sub-category under the definition of VCFs. This sounds complicated, but we’ll get to that. Other AIF investors, including those in VCFs, need to put in at least Rs. 1 crore (10 million) each. But for Angel funds, the requirement per investor is only Rs. 25 lakh. (2.5 million) This amount can be amortized over three years, so the investor can spread the money over a period. My view: AIF Cat-1 regulations are a pain. You can’t get new investors once you’ve launched a fund. (Close-ended) Risk and portfolio reporting requirements are detailed, with items like foreign exchange risk, detailed valuation methodology etc. Investments must be “revalued” every six months.…

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