Business Standard: March 1, 2013

Angel investors in India, who are cheered over finance minister’s pat on the back, is yet to find out the impact if angel investments are treated under Category I AIF venture capital funds.

During the budget speech, FM had said that SEBI will prescribe requirements for angel investor pools by which they can be recognised as Category I AIF venture capital funds. “Angel investors bring both experience and capital to new ventures,” FM said.

Under SEBI (Alternative Investment Funds) Regulations, 2012, Category I AIF include Venture Capital Funds, SME Funds, Social Venture Funds, Infrastructure Funds and such other Alternative Investment Funds. As per SEBI notification, the AIF should not have more than 1,000 investors and the minimum investment amount should not be less than Rs 1 crore.

Mahendra Swarup, president, Indian Venture Capital and Private Equity Association (IVCA) said, “There is no concept of pooling of money in angel investment, contrary to venture capital funds. In most cases, each member or individual invests money into the start ups. So, there is no point in bringing angel investors under the regulatory framework, which may kill the angel community in India.”

Padmaja Ruparel, president of Indian Angel Network (IAN), said, “we are happy that the FM has recognized genuine angel investing and that this activity should be encouraged. We see this as a positive step, we will work with SEBI to see how AIF Category I can be applied to Angel Investors.”

However, we would have preferred if Section 56 had been dropped or at least made applicable only to investments above Rs 5 crore, she added.

As per the new proposal under section 56 of income tax act, an investment received by an entrepreneur in an unlisted entity from a private funding source can be treated as income and 30% of the amount be taxed. This tax proposal is likely to hit the angel investors.

Sunil K Goyal, CEO, YourNest Angel Fund, said, “Budget has appreciated the role of angel investors. For the first time, India will have an identity created by the regulator for Angels. It’s a great step.”