In an aim to provide momentum to early-stage startup funding in India, market regulator SEBI plans to increase the maximum investment by angel funds in venture capital undertakings to Rs 10 crore from the current Rs 5 crore. However, the minimum investment by an angel investor will continue to be Rs 25 lakhs. The move will give boost to startups especially early-age ones to raise funds in maximum lot.

In this fast changing startup ecosystem of India, wherein angels are investing much higher amounts, such increase is needed to provide more opportunities to angel funds, regulatory officials said.

SEBI also plans on introducing the rule that an angel investor must have a minimum corpus of Rs. 5 crores in order to be able to register with SEBI as a recognized and legal angel investor. Further, the regulator also considering to raise the maximum period of accepting funds from an angel investor to 5 years from the present limit of 3 years, which will provide angel investors more time to identify opportunities and invest in venture capital firms.

The issue will be discussed at the board meeting of the Securities and Exchange Board of India (Sebi) this week, reported Business Standard.

Technically speaking Angel funds is a sub-category of Alternative Investment Funds (AIFs), which encourage entrepreneurship in the country by financing small startups at a stage where such firms find it difficult to obtain capital from traditional sources of finance such as banks and financial institutions. Currently, there are 398 AIFs registered with Sebi and among these 114 are registered under Category I, including eight angel funds.

Angel funds also refers to a money pool created by high net-worth individuals (HNIs) or companies (generally called as angel investors), for investing in business startups. Additionaly, angel funds offer mentoring to entrepreneurs as well as access to their own business networks.

Related Reading - What Types of Companies Do Angel Investors Fund?

Besides, SEBI also plans to provide an option to listed companies for distribution of cash benefits -- dividend of equity and preference shares as well as interest and maturity proceeds on debt instruments -- through the depositories in addition to the present system of distribution either directly by them or through the registrar to an issue and share transfer agents.

At present, there is a restriction on listed companies availing services of depositories for distribution of cash benefits.

In 2015 when SEBI relaxed norms for startups to get listed, the regulatory body, in last August, had also sent notices to at least half a dozen angel firms asking them for details of their business as SEBI found that few of them were acting like unauthorized stock exchanges.

To recall, few days back SEBI also announced that it is planning to allow startups to list on the small and medium enterprises (SME) platform of the stock exchanges as an opportunity to raise capital apart from usual private equity and angel investment funding route.

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