Accredited Angel Investing: SEBI’s New Regulations Set a New Standard for Startup Funding
Source: EODB NEWS | Published: 18 August 2025
Accredited Angel Investing: SEBI’s New Regulations Set a New Standard for Startup Funding
The recent comprehensive reforms introduced by the Securities and Exchange Board of India (SEBI) mark a pivotal transformation in the country’s angel investing landscape. Effective from July 2025, these regulations introduce a mandate that only Accredited Angel Investors—individuals and entities who meet stringent financial criteria and undergo independent verification—are permitted to invest in startups through angel funds. This shift decisively moves India away from a previously informal and accessible model, characterized by low-entry barriers and loosely regulated participation, towards a more exclusive, regulated, and professional framework.
Historically, India’s early-stage startup ecosystem thrived on diverse and widespread participation whereby anyone could contribute modest amounts as little as ₹5,000, often facilitated through informal channels such as WhatsApp groups. However, the newly imposed eligibility thresholds, requiring an annual income of ₹2 crore or a net worth of ₹7.5 crore verified by SEBI-accredited agencies, significantly raise the bar. Currently, only 649 investors meet these criteria, restricting access to a much smaller, highly vetted cohort. This move aims to enhance investor protection, improve transparency, and bring a higher level of discipline and professionalism to the startup funding environment.
The reforms also relax previous investment limits, allowing angel funds to invest between ₹10 lakh and ₹25 crore in a single startup, up from the earlier range of ₹25 lakh to ₹10 crore. The removal of the 25% concentration limit on investments in one company empowers funds with greater discretion over portfolio allocation, albeit with increased emphasis on prudent risk management. Furthermore, the regulations allow for a larger number of investors—over 200 Qualified Institutional Buyers—to participate in a single angel fund, thus enabling more substantial capital mobilization. To ensure alignment of interests, fund managers are now required to maintain a minimum investment stake in each fund they manage. The one-year transition period provided for existing non-accredited investors facilitates a gradual adjustment to the new regime.
These regulatory enhancements are aligned with the broader policy goal of fostering a robust, transparent, and professional startup ecosystem under India’s Ease of Doing Business initiatives. By consolidating the investor base into a select group of accredited individuals, the government is focusing on channeling larger, better-vetted capital into promising ventures, while ensuring greater due diligence and investor accountability. While this may temporarily narrow the pool of active angels, especially beyond metropolitan regions, it is expected to elevate India’s investment ecosystem to global standards of compliance and operational integrity.
For founders, especially those in emerging industries, these changes necessitate a more refined approach to attracting investment, emphasizing clear business traction and professionalism. At the same time, the reforms are set to encourage the growth of better-managed angel funds capable of delivering not only financial support but also mentorship at scale. Overall, SEBI’s revised framework represents a critical milestone—signaling a commitment to balancing accelerated growth with trusted governance practices. This new era of angel investing promises to cultivate a stronger, more resilient, and globally competitive startup ecosystem in India.
SEBI’s angel investing reforms represent a watershed moment: a clear signal of the regulator’s intent to combine robust growth with trusted processes and world-class standards. For India’s founders and investors alike, the new era demands greater rigor but holds promise for a more resilient, globally competitive startup ecosystem.
Mr. Abhijeet sinha
Angel investors in India will become rarer than tigers
Source: Economic Times | Published: 28 July 2025
Angel investing in India has just crossed a modest milestone of $1 billion in commitments, and already the nascent asset class is facing extinction. Blame it on an overdose of regulatory attention.
Until recently, affluent individuals who placed small bets on long shots were targeted with a bizarre “angel tax,” which viewed startups’ fundraising as taxable income. Now that the government has finally scrapped the draconian levy, the Securities and Exchange Board of India has sown fresh seeds of disquiet for people who want to try early-stage allocations via collective investment plans: It wants them to get accredited.
Commitments into angel funds have swelled by 44% over the past year, and investments have surged by a third. These are reasonable growth rates, but the SEBI seems to believe that it can give a further boost to the “ease of doing business.”
Although that’s a welcome sentiment, some caution is warranted. As a risk-taking culture spreads beyond established business families, new sources of finance must emerge. If angel funds exit the scene because their investors don’t want to seek accreditation, many promising entrepreneurs may have to drop out before their first meeting with venture capital or private equity.
The regulator means well. It wants to unshackle angel investors from India’s Companies Act, which limits participation in private placement of securities to 200 subscribers. Any more will require public offerings. But this rule is unfair to regulated funds, where professional managers are required to have skin in the game. Plus, the risks are explained in a memorandum, and explicit investor consent is needed for each bet. There’s clearly a need to distinguish between private placements and angel investing.
It has come up with a plan. From next year, individuals who invest in angel funds will be treated as Qualified Institutional Buyers. Since the law exempts QIBs from the 200-person rule, managers will no longer have to limit participation. This “would allow angel funds to show opportunities to a wider pool of eligible investors, while staying in conformity with the Companies Act,” the SEBI said last month.
There’s a catch, however. Since individuals aren’t really institutions, the SEBI wants them to become accredited investors like in the US to qualify for the exemption. They will have a year to adjust to the new regime. Trouble is that while 13% of Americans meet the thresholds for buying private securities, so far only 650 Indians have successfully applied for accreditation, according to ET Wealth. That makes them rarer than the Bengal tiger, an endangered species.
Do only 0.00005% of Indians earn more than 20 million rupees ($230,000) annually, or have a net worth in excess of $860,000? Not really. Counting just the top tax payers, at least 60,000 people should easily meet those minimum standards. But to get accredited, people have to provide proof to third parties. In a country where authorities send tax bills to roadside vegetable vendors by tracing QR-code-based payments, it’s in nobody’s interest to furnish documentation showing how rich they are Not when the memory of the disastrous “angel tax” is still fresh.
Even if the goal is to drive accreditation, why single out startup investors who are doing something worthwhile with their money and time? That already sets them apart from the nine out of 10 Indian retail traders betting on equity options and being taken to the cleaners by big whales like Jane Street. The public-market casino is where the regulator needs to police participation. Private markets don’t need the same level of scrutiny beyond ensuring that the capital entering fledgling firms is not tainted.
At present, angel investors only self-certify a minimum net worth to their fund manager. The thresholds are low, as is the compliance burden. It is a lax process. Not everyone who is being invited to dabble in unlisted securities has the risk appetite for it. But as long as they are giving informed consent, they can be safely left alone. It’s the insurance and banking regulators that have to put a stop to much more widespread deceptive selling in their industries. Why’s the SEBI rushing to fix what isn’t broken.
The $1.2 billion that angels have committed so far may not produce superstar enterprises. That’s fine, as long as a growing pot of money helps nurture some gritty entrepreneurs. As I wrote last week, millennial and Gen Z billionaires among India’s traditional family-owned firms are bored with business. They don’t fancy their chances against either large tycoons, or smart startup founders. But the latter need financing.
The SEBI’s other ideas are laudable. Relaxing the floor and cap on investments, doing away with concentration limits on exposure, and allowing funds to keep backing startups as they mature will improve returns. But forcing investors to get accredited by third parties? That’s sure to backfire, unless the SEBI itself obtains their permission to query the tax returns database. A simple yes or no answer to the eligibility question, based on information they have already shared with tax authorities, could help increase the number of 650 accredited investors manifold. The rich in India are far from endangered, but they don’t want to flaunt their stripes any more than they have to.
