The Securities and Exchange Board of India (SEBI) is considering a major overhaul of the regulatory framework governing angel funds in India. The proposed changes, aimed at strengthening the startup ecosystem, include raising the maximum investment limit by angel funds in a single startup to  Rs 25 crore , up from the current limit of  Rs 10 crore . This move is set to provide significant capital to India's burgeoning tech-driven startups, offering them the financial backing necessary to scale and expand their operations.  

Key Proposals Under Consideration  

1. Raising the Investment Cap to Rs 25 Crore : A central feature of SEBI's proposed changes is the increase in the investment limit that angel funds can make in startups. The proposal suggests raising the maximum amount an angel fund can invest in a single startup from  Rs 10 crore to Rs 25 crore . This change aims to provide startups with access to larger amounts of capital, especially those in sectors like technology and innovation, which often require significant funding to scale rapidly.  
2. Lowering the Minimum Investment Limit : Along with the increase in the maximum investment cap, SEBI is proposing to lower the minimum investment amount for angel funds. Currently, angel funds must invest at least  Rs 25 lakh in any startup, but SEBI’s new guidelines suggest reducing this threshold to  Rs 10 lakh . This adjustment is expected to make angel investing more accessible, enabling smaller investors to participate in the growth of early-stage companies.  
3. Expanding the Pool of Eligible Investors : In an effort to democratize startup funding, SEBI is looking to broaden the eligibility criteria for angel fund investors. The proposal includes allowing entities such as  Hindu Undivided Families (HUFs) ,  family trusts , and  sole proprietorships to invest in angel funds, alongside traditional individual accredited investors. This expansion will provide startups with a larger pool of potential investors, thus increasing their chances of securing funding.  
4. Relaxing Diversification Limits : Currently, angel funds are required to ensure that no more than  25% of their total funds are invested in any one startup. SEBI’s proposal seeks to remove this diversification cap, thereby allowing funds to focus more resources on fewer, higher-potential ventures. This shift could encourage more concentrated investments in startups with the potential for rapid growth.  
5. Third-Party Verification of Investors : To maintain the quality and security of angel fund investments, SEBI is proposing third-party verification of investors’ eligibility. This move would ensure that only investors with the necessary risk appetite and financial capacity to evaluate early-stage startups are allowed to participate.  
6. Lowering Investment Threshold for Fund Managers and Employees : SEBI has also proposed that the minimum investment threshold for employees and directors of angel funds be reduced to  Rs 5 lakh , ensuring they have a stake in the success of the startups they fund. This aligns their interests with those of the entrepreneurs, creating a more cohesive investment ecosystem.  
7. New Criteria for Angel Fund Corpus and Investor Numbers : Another significant change is the proposal to eliminate the  Rs 5 crore minimum corpus requirement for angel funds. Instead, SEBI suggests that funds should only be allowed to begin investing once they have onboarded a minimum of  five accredited investors . Furthermore, while angel funds are currently capped at  200 investors annually , this limit may be relaxed for accredited investors, offering greater flexibility.  

Why These Changes Are Crucial for India's Startup Ecosystem  

These proposed reforms are set to have a transformative impact on the Indian startup ecosystem. By raising the maximum investment limit to  Rs 25 crore , angel funds would have the ability to provide much-needed capital to high-growth startups that require larger sums to scale effectively. Additionally, the reduction in the minimum investment threshold would open the doors for more investors, allowing a wider range of individuals and entities to participate in early-stage investments.  

The easing of diversification and corpus requirements would allow angel funds to concentrate their investments on startups with the highest growth potential, increasing the chances of significant returns for investors while providing startups with the resources they need to thrive.  

Moreover, these changes align with the government's broader push to support the startup ecosystem, such as the recent abolition of  angel tax , which has been a significant burden for early-stage companies. By streamlining the regulatory framework and expanding the pool of potential investors, SEBI’s proposal aims to enhance the ease of doing business in India’s startup sector.  

Public Feedback and Implementation  

SEBI has invited public feedback on these proposals, with comments being accepted until  November 28 . This consultation process allows stakeholders from across the startup and investment communities to provide their input before the final regulations are drafted.  

If approved, these changes could have a profound impact on India’s ability to nurture its startup ecosystem, positioning the country as a global leader in innovation and entrepreneurship. The increase in the investment limit to  Rs 25 crore and the easing of investment criteria represent bold steps toward making angel funding more effective and accessible, ultimately fostering a more robust and dynamic startup environment in India.  

By enabling greater investments, enhancing investor flexibility, and encouraging larger investments, SEBI’s move signals a bright future for India's startup sector.