SME platform rules: Individual angel investors kept out

Only investments facilitated by association eligible under latest circular

Small and medium enterprises (SMEs) that seek to access the new SME platform, which allows listing without raising capital, would need investments facilitated by a group or an association of angel investors, rather than by individual angel investors, the Securities and Exchange Board of India (Sebi) has said.

Mahendra Swarup, president, Indian Venture Capital and Private Equity Association (IVCA), said taxation had a role to play in the distinction between individual angel investors and others. “There are tax benefits associated with angel investors, which they believe should go to angel investors under the AIF(alternative investment fund) route or through the angel network, not to an investor who might come in at a later stage and then exit through the platform,” he said.

The new AIF guidelines have brought angel funds under the definition of venture capital funds, allowing these the same exemption from taxation as that granted to venture capital funds.

Pavan Kumar Vijay, managing director, financial consultancy firm Corporate Professionals, said the market regulator’s move was aimed at addressing the credibility of these investments. “Most serious angel investors are registered in the form of a company or a trust whose accounts can be scrutinised. In the case of individuals, this is not the case,” he said.

Recently, Sebi had sought to allow SMEs to list without an initial public offering. Existing investors in these companies would be able to use the window to trade securities, or exit the company if they so desired. These companies should have received funding or investment from at least one of the eligible entities, including scheduled banks and specialised international multilateral or domestic agencies, in addition to angel investors.