SEBI clarification on angel fund under the SEBI (alternative investment fund) regulations, 2012
July 7, 2020
In the matter of Ankur Fincom Management Pvt. Ltd.
In an Informal Guidance to Ankur Fincom Management Pvt. Ltd dated 12 June 2020, SEBI has provided clarification on Angel Funds under the SEBI (Alternative Investment Fund) Regulations, 2012. Specifically, it has responded to the queries that (i) whether the intent of Angel Fund Regulations is to provide options for investors to selectively participate in each scheme of the Angel Fund; (ii) whether each scheme of an Angel Fund is an independent vehicle with its own set of investors, who have approved to be part of such scheme; and (iii) whether an investor who does not approve to participate in a particular scheme, would be ring-fenced from the scheme investment under Angel Fund Regulations
The applicant Ankur Fincom Management Pvt. Ltd. is the investment manager to Ankur Capital Fund, which is registered with SEBI as a Category-I AIF- Venture Capital Fund- Angel Fund. One of the investors in the fund is an Indian insurance company (Investor X). The fund has invested in Company A, a company registered outside India, having its operations in India. The investor X did not approve for the scheme to invest in Company A and the scheme document filed with SEBI also doesn’t list down the said investor as the participant of that scheme. Hence Investor X has not contributed for their share of investment in Company A and no income/expense, gain/loss is allocated to Investor X with respect to the scheme for investment in Company A. Since each scheme is a separate vehicle within the fund, the accounts of investment, income/expense, gain/loss are maintained separately for each scheme under the fund.
SEBI’s response to the queries are as follows:
Regulation 19G(3) of the AIF Regulations requires a manager of an angel fund to obtain an undertaking from the angel investor confirming his approval before investing the amount of said investor in any venture capital undertaking. Therefore, insofar as investment in angel fund is concerned, the investor may selectively participate in each scheme of the angel fund.
In accordance with Regulation 19E(1) of the AIF Regulations and SEBI circular dated June 29, 2018, Angel Funds may launch schemes subject to filing of term sheets for their schemes. The format of term sheet provided under the said circular requires an angel fund to specify the name of scheme, name of Investee Company, number of investors, total capital committed by investors, capital drawn by fund etc. Therefore, each scheme of an Angel Fund is an independent scheme with its own set of investors, who have approved to be part of such scheme.
An investor in an Angel Fund, who does not grant specific approval to participate in a particular scheme, is not an investor in that particular scheme. Thus, if an investor has not given approval for investment in any particular investee company, the said investor would not be part of that scheme concerning the said investee company. Therefore investors in each scheme are ring-fenced from the activities of other schemes of the Angel Fund in which they have not participated.
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