IFSCA issues regulatory framework for Angel Funds to facilitate investments in start-ups

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In recognition of the crucial role played by angel investors in nurturing entrepreneurship by providing early-stage financing to start-ups, the International Financial Services Centres Authority (IFSCA) has issued a regulatory framework for Angel funds under the IFSCA (Fund Management) Regulations, 2022.

This move is in furtherance of the IFSCA mandate to develop and regulate financial products, financial services, and financial institutions in the International Financial Services Centres (IFSC), the authority said in a circular issued on July 1.

It had notified the IFSCA (Fund Management) Regulations, 2022 in April 2022 enabling a regulatory framework for various activities related to fund management including schemes for investing in early-stage venture capital undertaking (start-ups).

Notably, Angel Funds bridge the gap between start-ups and angel investors, who are instrumental in providing mentoring, and resources to the start-ups. In recognition of the same, IFSCA issued the framework for Angel funds.

The salient features of the framework are:

A Fund Management Entity (FME) in IFSC will be able to launch Angel Funds by filing a placement memorandum with the Authority under a Green Channel. This means the schemes can open for subscription by investors immediately upon filing the placement memorandum with the IFSCA.

Angel Funds shall accept investments from accredited investors or investors who are willing to commit at least $40,000 over a period of five years.

Angel Funds are permitted to invest in start-ups as well as other regulated angel schemes in IFSC, India, and foreign jurisdictions upon receiving consent from the desirous investors.

Although investment(s) by an Angel Fund in a start-up is capped at $1,500,000, the Angel fund will be permitted to invest in subsequent rounds of fundraising by the start-up in order to protect its shareholding from dilution, subject to certain conditions.