Will Startup Funding Slow as Sebi Tightens Angel Investor Rules?

“Sophisticated” or accredited investors (AIS) are individuals who have a higher undersrstanding of the risks associated with Complex Financial Products. To Qualify as an accredited investor, the security 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 accredited might might Participate, “Said Ashish Bhatia, Founder & CEO at India Accelerator, A Startup Accelerator and Early-STAGE Investment Platform.

He added that until people get accredited, many angels, especially new only, 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 feet the pink in the short term,” Bhatia Added.

At Its Board meeting on 18 June, sebi mandated that an entity investment in an angel fund be registered as an accredited investor. The regulator said the definition of Angel Investors, Created in 2013, Is Outdated and Doesn’s Financial Landscape.

An Accredited Investor Must Now Have One of the Folling: Annual Income Exceding 2 Crore, Annual Income Exceding 1 Crore AlongSide a Net Worth Surpassing 5 Crore, or a network exceding 7.5 Crore.

Previous, an angel investor was characterized as an individual with tangible assets of at least 2 Crore (Excluding their primary residence), Prior Startup Investment or Entrepreneurial Experience, or Senior Management Experience of a Minimum of a minimum of 10 years, and who have invited a minimum of a minimum of 25 lakh in an angel fund. Body corporates were qualified if they had a net worth of at least 10 Crore.

Currently, in an angel fund, the fund manager Verifies Investor Eligibility Informally without external validation. Accreditation will standardise this by requiring verification from designated agencies so that the fund manager knows if the investor is suitable to take risks.

It typically takes Around Three Business Days to Obtain an accreditation certificate. The certificate, valid for two years, come with a fee of 12,000. While the fee is relatively modest, some experts believe that the accreditation will gain broader acceptance if it is linked to clear and tangible benefits for that obtaining it.

Also read | Mint explainer: What Did Sebi Decide at Its 210th Board Meeting?

Pain for early-stage startups

The immediati Fallout is expected to be felt most acute at the pre-seed and seed stages, especially in smaller right Angels.

Priyanka Madnani, Founder & CEO at Terex Ventures, An Early-STAGE VENTUTETER CAPITAL FIMM, Said Growth-STAGE STARTUPS MAY BE BE Insulated as Larger Check Sizes and Institute Players will Drive Capital Drive Capital Through alternative investment funds (AIFS) and co-infestment vehicles (CIVs), said Madani.

Aifs are private pooled investments registered by sebit in investment in venture capital, private equity, and other alternative assets. Meanwhile, civs are investment structures that allowed multiple investors to pool capital and investment along with a lead investor in specific deals.

“The Real Hit Will Be To Early-Stage Founders in Tier 2 and Tier 3 Cities, Who often Raise from a Web of Personal Contacts, Syndicates, and Enthanusiastic first-time angels, many of the women Locked out or feel like a Door Half-Shut, Till they adapt to the new regime, “said Madnani, adding that it will clear up green areas and attract more serial in the long run.

According to Brijesh Damodaran Nair, Managing Partner at Auxano Capital – A Venture Capital Firm and Fund Manager of Category I Funds or Angel Funds – Retail Angel Investors Nair also added that most investors are unaware of the process and may not want to become accredited investors, which “can narrow the pool of proseging fund manners.”

Also read: Investment Banks Enter Startup Funding Space to Diversify Revenue Streams

Capacity concerns

Some experts believe the current account process is too complicated and may not be able to handle the growing number of angel investors.

There are 750 accredited investors registered as of May 2025, Said Sebi’s Consultation Paper.

“With many more investors now entering the system, the existing setup does prepared to handle the load, whichwal could sleep down angel injury,” Said Divaspati Singh, Partner at Khaitan & Co.

At the moment, only two agencies – CDSL Ventures Limited (Owned by Central Depository Services (India) Ltd) and NSDL Data Management Ltd (Owned by Nural Securities Ltd) Accreditation process.

Foreign Investors

Singh also pointed out that the process is even different for global investors. Thos with assets to over a billion dollars have to submit Indian tax return, even if they’re new to the country, said Singh.

In Several Countries, Investors are Simply Allowed to Self-CERTIFY their status, without “But in India, the process is manual and strict, which often leads to delays and even rejections over small mistakes.”

Ketan Mukhija, Senior Partner at Burgeon Law Said The Transitioning Accredation to Sebi-Register Know Your Customer (KYC) Registration Agencies (KRAS) Unless capacity is scled. “

However, the Investor Community Sees a Temporary Setback and Says it might not last too long as investors are expected to get themselves accredited and adapt to the changes in the changes in the long run.

Siddartha Pai, Founder of 3one4 Capital, A Bengaluru-Based Venture Capital Firm Focused on Early-STAGE Technology Investments, Expects this to be a Temporary disrupt, which is not like a temporary disrupt A Quarter.

Pai Noted that Market Accounting of the Current Accredation Process is low due to its complexity and cost.

However, sebi is likely aware of the issues and is taking steps to ease the concerns. On 17 June, it released a consultation paper to enhance the current account process.

The draft paper said that it will increase the number of accreditation agencies to all kyc registration agencies (kras), which is currently limited to CDSL Ventures Limited and NSDL DAL DAL DAL DAL DARATED

The paper also said that Alternative Investment Funds (AIFS) may be allowed to provisionally onboard investors as accredited investors on the basis of their due diligence, Subject to COBTAIN CONDITINS.

Pai welcomed the move to let fund mangers initiate account And Issue Accreditation Certificates Quickly. ” He Called for a “Less prescriptive and more Principle-Based” Regulatory regime.

According to sebi, as of March 2025, the commitments raised by angel funds 10,138 Crore, While Investments Made WERE 4,134 Crore.

As of 31 March 2024, there was 82 angel funds registered under the aif regulations. The number could grow if the accreditation process evolves in time. Until then, Angel Investing In India May Go Through a short adjustment phase.