Implications of SEBI guidance on angel funds

Securities and Exchange Board of India angel fund

On 17 September 2020, the Securities and Exchange Board of India (SEBI) issued an informal guidance to Lets Venture Advisors, manager to LV Angel Fund, an angel fund registered with the SEBI under the SEBI (Alternative Investment Funds) Regulations, 2012 (AIF regulations).

LV Angel Fund faced certain operational issues in complying with AIF regulations. The individual angel investors of the fund wanted to invest in the fund through the medium of a limited liability partnership (LLP) instead of making direct investments taking into consideration succession and estate planning. While each partner of the LLP satisfied the conditions to be qualified as an angel investor, the LLP itself did not meet the criteria of net worth.

Also, some of the fund’s investors found it cumbersome to provide an undertaking every time the fund proposed to make an investment, confirming their approval for such an investment. The investors were happy to waive their rights to approve or disapprove the investment so long as a lead investor gave its consent.

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