SEBI’s New Rules for Angel Funds: What Founders and Investors Must Know

In September 2025, SEBI introduced a new framework for Angel Funds, reshaping how early-stage capital flows into startups.

These changes aim to increase transparency, standardize processes, and align angel investing with broader market practices, marking a significant shift for both founders and investors.

Key Regulatory Changes

1. Accredited Investors Only

Angel funds may now raise capital only from accredited investors, replacing the earlier self-certified criteria.

To qualify as an accredited investor:

• ₹2 Cr annual income OR
• ₹7.5 Cr net worth (with at least ₹3.75 Cr in financial assets)
  

Currently, India has only ~650 accredited investors, including firms, family trusts, and corporates.

Existing angel funds have until 8 September 2026 to comply with this new requirement.

2. No Minimum Investment Amount

SEBI has removed the minimum cheque size requirement for investors in angel funds, making it more flexible for accredited investors to participate at varying ticket sizes.

3. Minimum 5 Investors at First Close

Every new angel fund must:

• Onboard at least five accredited investors at the first close.
• Complete the first close within 12 months of receiving SEBI approval.

4. Deal-Level Disclosure and Allocation

Every investment must be:

• Shared with all investors in the fund, and
• Allocated using a pre-declared methodology, ensuring fairness and transparency.

5. Manager “Skin-in-the-Game” Increased

Sponsors must now co-invest in each deal at the higher of 0.5% of the cheque size or ₹50,000.

This replaces the earlier rule of 2.5% of the total fund corpus, shifting the focus to deal-by-deal accountability.

6. No Separate Co-Investment Schemes

Angel funds must invest only through the main fund structure.

• Sidecar vehicles and deal-specific co-investment schemes are no longer permitted, streamlining the process and reducing complexity.
  

7. Ban on Related-Party Contributions

Portfolio companies cannot accept contributions from related parties of the fund, further strengthening governance and reducing potential conflicts of interest.

8. Restriction on Corporate-Linked Startups

Angel funds cannot invest in startups promoted, sponsored, or related to a corporate group with a combined group turnover exceeding ₹300 Cr.

Exception:
Funds can add more capital to existing portfolio companies, even if those companies are no longer classified as startups, subject to SEBI’s specified conditions.

This helps ensure capital remains focused on emerging, independent startups, while still allowing follow-on investments where necessary.

Impact on Investors

1. Experienced Angels Excluded

Many seasoned angels do not meet the new accreditation thresholds, reducing the pool of early-stage capital and expertise available to founders.

2. More Red Tape

Syndicates and funds will face stricter deadlines and additional paperwork, which could slow down the pace of fund closes and deal execution.

3. Flexibility Lost

With sidecars no longer allowed, smaller cheque sizes and quick co-investments become more difficult to execute, limiting flexibility for investors.

Impact on Founders

1. Seed Rounds Delayed

It may take longer for founders to secure five accredited investors, potentially delaying seed round closures.

2. Capital Concentrated

Larger funds and wealthy backers are likely to gain more influence, potentially shifting dynamics in early-stage fundraising.

3. Fewer Flexible Options

Without co-investment vehicles, smaller cheque sizes may not fit into rounds, reducing founders’ ability to raise from a diverse investor base.

Looking Ahead

SEBI’s move represents a significant step in formalizing India’s angel investing ecosystem.

For founders, these changes bring more structure but also new challenges in securing early capital quickly.
For investors, they set higher compliance standards while encouraging greater accountability and transparency.

Adapting to this new regulatory regime will be key to navigating India’s evolving startup landscape in the years ahead.

Need Guidance?

If you have any questions or need support in understanding how these changes affect you, reach out to us at: 📧 contact@lvxventures.com