Startups get Sebi lifeline

Mumbai: Making it easier for startups to raise capital from Angel funds, Sebi on Wednesday relaxed norms governing investments by angel investors.

Approving most of the recommendations submitted by an advisory committee headed by N.R. Narayana Murthy, the regulator said a maximum of 200 angel investors would be now allowed to invest in an alternative investment scheme that invests in startups.

Earlier, only 49 angel funds were allowed to participate in a scheme. Angel funds provide the much-needed seed capital to cash-starved entrepreneurs in their early stages of growth. In order to make it easier for angel investors to enter and exit a company, the regulator relaxed the minimum lock-in requirement.

“The lock-in requirements of investment made by Angel Funds in the venture capital undertaking is reduced from three years to one year,” Sebi said.

Additionally to make a number of companies eligible to receive capital from Sebi-registered funds, the regulator allowed angel funds to invest in startups incorporated within five years from an earlier cap of three years.

“The requirements of minimum investment amount by an Angel Fund in any venture capital undertaking is reduced from fifty lakhs to twenty-five lakhs,” Sebi added.

The board of Sebi, which met on Wednesday also decided to permit foreign portfolio investors (FPI) to invest in unlisted debt securities and securitised debt instruments.

Currently, overseas investors were permitted to invest only in unlisted debt instruments issued by companies in the infrastructure sector. However, the regulator clarified that such instruments should have a minimum residual maturity of three years.

More importantly, funds received from overseas investors will have end use restrictions on investment in real estate business, capital market and purchase of land. Addressing the corporate governance issues in compensation agreements entered into between key managerial persons and private equity players, Sebi said such agreements should get prior approval from the board of directors as well as public shareholders.

“The board had deliberated the concerns related to private equity funds entering into compensation agreements to incentivise promoters, directors and key managerial personnel of listed investee companies which could potentially lead to unfair practices,” Sebi said.