Sebi considers expanding eligibility for qualified institutional buyer

Markets regulator Sebi is looking to expand the definition of qualified institutional buyers (QIB) and remove the 200-investor cap, allowing angel funds to access a broader pool of accredited investors.

This move will enable more wealthy investors to participate, boosting funding for startups. It ensures that only financially strong investors take on high-risk investments, helping Angel Funds raise more capital and support early-stage companies.

Angel Funds, a type of venture capital fund, mobilize money from investors to support startups.

However, concerns have been raised about inadequate verification of investors' risk appetite, the onboarding of numerous investors without strong financial backing, and potential conflicts with private placement regulations under the Companies Act, 2013.

To address these concerns, Sebi previously proposed that only Accredited Investors (AIs) should be allowed to invest in Angel Funds.

Now, the regulator is seeking feedback on amending the definition of QIBs to include accredited investors, specifically for offering investment opportunities and allocating investments through angel funds.

Additionally, Sebi has proposed removing the 200-investor cap for Angel Funds.

Under the Companies Act, private placements cannot be offered to more than 200 investors unless they are QIBs.

Currently, Angel Funds provide investment opportunities to a large number of investors, even though actual investments per company are limited to 200.

The proposal suggested that there should be no cap on total investors in Angel Funds, as all will be accredited. Furthermore, the 200-investor limit per company may be lifted since AIs, now considered QIBs, are exempt from this restriction.

The Securities and Exchange Board of India (Sebi) has sought public comments on the proposals till March 14.