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SEBI has issued new rules under the AIF framework that require angel funds to raise capital only from accredited investors. Existing angel funds must align with these rules by early September 2026. During the transition, they cannot offer investment chances to more than 200 non-accredited investors. Funds must have at least five accredited investors before first close, with first close to happen within 12 months of SEBI recording the Private Placement Memorandum. Investment thresholds, lock-in periods, follow-on investment norms, and compliance requirements have also been revised. Angel funds will now be a distinct Category I AIF, and compliance audits will apply to those above INR 100 crore, along with mandatory reporting of valuations and cash flows.
SEBI has clarified that angel funds will now be allowed to raise capital only from accredited investors under the revised framework to streamline fundraising, investment and compliance norms. Registration by SEBI will be granted only to angel funds that comply with this requirement. Existing funds have been given time until early September 2026 to conform to the new regime. Advertisement
During the transition phase, angel funds may not offer investment opportunities to more than 200 non-accredited investors. However, investors who are already part of such funds will be allowed to retain their holdings in line with terms set out in the Private Placement Memorandum (PPM).
Before an angel fund declares its first close, it must have secured at least five accredited investors. The first close must also be completed within 12 months after SEBI takes on record the fund's PPM. Existing funds that have not yet declared first close must do so by the deadline in early September 2026; failure to meet this will mean they have to refile documents with SEBI.
Investments into portfolio or investee companies will now be done directly by angel funds - the earlier requirement of launching a scheme for each investment has been removed. While term sheets no longer need to be filed with SEBI before making investments, angel funds are required to maintain records of term sheets for each investment, including the list of investors in each investment and their contributions.
SEBI has also allowed follow-on investments in companies that have ceased to be classified as startups, subject to conditions: post-issue shareholding should not exceed pre-issue levels, and total exposure to a single company (including follow-ons) must stay capped at INR 25 crore. Only existing investors in a company can take part in such follow-on rounds, and their participation must be proportional to their earlier contributions.
Lock-in rules have been updated: typically investments by angel funds will be subject to a one-year lock-in, but this can be reduced to six months if exit happens via a sale to a third party. Overseas investments by angel funds are still allowed, but they must stay within the 25 per cent ceiling under the AIF norms.
Under the new rules, angel funds will now be recognized as a full Category I AIF instead of being treated as a sub-category of venture capital funds. Compliance audits will be mandatory for those funds whose investments exceed INR 100 crore. All angel funds must also provide investment-wise valuation and cash flow data to benchmarking agencies so that performance can be compared. This circular has come into force with immediate effect.
Source PTI
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