Will Sebi's Angel Investor Rules Slow Startup Funding?

The immediate fallout is likely to be felt at the pre-seed and seed stages in smaller cities

- Srushti Vaidya & Neha Joshi

India's capital markets regulator has restricted angel fund investments to only accredited or "sophisticated" investors, a shift that may delay early-stage startup funding till the time these investors get accommodated into the new regime.

"Sophisticated" or accredited investors (AIs) are individuals who have a higher understanding of the risks associated with complex financial products. To qualify as an accredited investor, the Securities and Exchange Board of India (Sebi), India's capital markets regulator, has set minimum thresholds for net worth and annual income.

"By mandating only accredited investors in angel funds, Sebi is aiming for higher credibility and better governance, but the added formalities of accreditation might make it harder for new angel investors to participate," said Ashish Bhatia, founder and chief executive officer (CEO) at India Accelerator, a startup accelerator and early-stage investment platform.

He added that until people get accredited, many angels, especially new ones, might stay on the sidelines. "Syndicates will need to rework their processes, and some deals could slow down, and founders raising early-stage rounds may feel the pinch in the short term," Bhatia added.