DEPUTY GENERAL MANAGER

informal_guidance · 1992 · State unknown

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Parent: THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (7c4c1f5343adab106c3a94cafc08a5ecf5957ae7)

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DEPUTY GENERAL MANAGER ALTERNATIVE INVESTMENT FUND AND FOREIGN PORTFOLIO INVESTOR DEPARTMENT DIVISION OF POLICY AND DEVELOPMENT -I Ms. Dimple Mirchandani , Firstport Ventures LLP, Investment Manager of FirstPort Capital Angel Fund , 239, 2 nd floor, Tower A, JMD Megapolis, Sector 48, Gurugram, Haryana 122018. Madam , Sub: Request for Informal Guidance by way of interpretive letter under the provisions of the Securities and Exchange Board of India (Informal Guidance) Scheme, 2003 in connection with provisions for Angel funds under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 Ref: Your letter dated April 12, 2024 and subsequent correspondences on the letter In your letter / communications under reference, you have, inter-alia, stated that FirstPort Capital Angel Fund ("Fund") is registered with SEBI as a Category I – Venture Capital Fund – Angel Fund and that you have come across certain operational issues while operating as an Angel Fund, on which guidance is required . In this context, you have sought an interpretive letter under the Securities and Exchange Board of India (Informal Guidance) Scheme 2003 ('Informal Guidance Scheme') from SEBI on the following queries - Query I: Angel Fund had made an investment in a start-up, meeting eligibility criteria as per DPIIT notification (G.S.R 34 (E) dated January 16, 2019). Subsequent to this investment, the start-up ("Investee Company") over a period of time ceases to be eligible as a start-up under the eligibility criteria as per DPIIT notification. In such an event, whether the Fund can exercise its pre-emptive right/rights issue/Renounced rights issue of shares against convertible securities as per SEBI/HO/AFD/PoD-1/OW/2025/7738 March 13, 2025 Shareholders Agreement by subscri

Rule TOC

3 · 1. In terms of Regulation 19F(1) of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 ("AIF Regulations"), Angel Funds shall invest in startups which meet certain specified conditions mentioned under Regulation 2(1)(wa) of the AIF Regulations .

3 · 2. Thus, extant AIF Regulations do not provide for investment by Angel Funds in entities other than start -ups. Investments by Angel Funds, by exercising pre-emptive rights, in their existing portfolio investee companies which are no longer start-ups , would not be in line with AIF Regulations .

3 · 3. As per Regulation 19F(2) of AIF Regulations , the minimum amount to be invested by an Angel Fund in a start-up is INR 25 Lakhs. Therefore, the first investment by an Angel fund in each investee company/start-up shall not be less than INR 25 Lakhs.

3 · 4. However, the requirement of minimum investment amount of INR 25 Lakh shall not apply to any additional/follow-on investment made by the Angel Fund in its existing portfolio investee company/start-up.

3 · 5. As per paragraph 8 of SEBI (Informal Guidance) Scheme, 2003, SEBI may not respond to requests where policy concerns require that the Department does not respond.

3 · 6. Since the queries III and IV fall under the aforesaid provision, no response has been provided to these queries.

3 · 7. In terms of Regulation 19D(3) of AIF Regulations, Angel funds shall accept, up to a maximum period of five years, an investment of not less than INR 25 lakh from an angel investor.

3 · 8. Regulation 2(1)(p) of AIF Regulations defines 'investable funds" as corpus of the scheme of Alternative Investment Fund net of expenditure for administration and management of the fund estimated for the tenure of the fund.

3 · 9. Regulation 2(1)(h) of AIF Regulations defines "corpus" as the total amount of funds committed by investors to the Alternative Investment Fund by way of a written contract or any such document as on a particular date. Thus, corpus of the Angel fund as defined, will include the total amount of funds committed by the investor to the Alternative Investment Fund by way of a written contract and accordingly, the capital amount committed by an investor may be inclusive of the fees/costs/expenses payable to the Fund.

3 · 10. As per Regulation 19A (2) of AIF Regulations,

3 · 11. In this regard, it may be noted that Regulation 2(2) of AIF Regulations states that 'All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Act or the Securities Contracts (Regulation) Act, 1956, (42 of 1956) or the Companies Act, 2013 (18 of 2013), or any statutory modification or reenactment thereto, as the case may be ' .

3 · 12. Section 2(11) of the Companies Act defines ‘body corporate’ as following:

3 · 13. Thus, in terms of Regulation 19A(2)(b) of the AIF Regulations a trust cannot be an angel investor in an angel fund unless it is registered as an AIF under the AIF Regulations or a Venture Capital Fund under SEBI (Venture Capital Funds) Regulations, 1996.