Angel Fund Scheme-Investor may selectively participate and are ring-fenced from other Schemes – SEBI
The requisitionist was an Investment Manager to and Angel Fund. The Fund, being an Angel Fund, had a separate scheme for each of its investments and was filing a separate scheme document with SEBI prior to each investment.
Investors have the option to invest or not invest in each scheme. If an investor opts out of an investment, their share of investment or income/ expenses, gains/ losses from that scheme shall not be allocated to such investors.
One of the investors in the Fund is an Indian Insurance Company (“Investor X”) . The Fund has invested in Company A, a company registered outside of India, having its operations in The investor X did not approve for the Scheme to invest in Company A and the scheme document filed with SEBI also does not list the said investor as participant of that Scheme. Hence Investor X has not contributed for their share of investment in Company A and no income/ expense, gain/loss is allocated to Investor X with respect to the scheme for investment in Company A.
In view of the above, the Fund Manager sought an interpretive letter under SEBI (Informal Guidance) Scheme, 2003 from SEBI.
The various queries raised and the response by the SEBI were as under:
| Query | Response |
| Query 1: Whether the intent of the Angel Fund Regulations is to provide the option for investors to selectively participate in each Scheme of the Angel Fund | Regulation 19G(3) of the SEBI (Alternative Investment Funds) Regulations, 2012, requires a manager of Angel Fund to obtain undertaking of the angel investor confirming his approval before investing the amount of said investor in any venture capital undertaking. Therefore, insofar as investment in angel fund is concerned, the investors may selectively participate in each scheme of the Angel Fund |
| Query 2: Whether each scheme of an Angel Fund is an independent vehicle with its own set of investors, who have approved to be part of such scheme | ln accordance with Regulation 19E(l) of the SEBI (Alternative Investment Funds) Regulations, 2012 and SEBI Circular dated June 29, 2018, Angel Funds may launch schemes subject to filing of Term Sheets for their schemes. Further, the format of the Term Sheet as provided under the said circular requires an Angel Fund to specify the name of scheme, name of Investee Company, number of investors, total capital committed by investors capital drawn by fund etc. Therefore, each scheme of an Angel Fund is an independent scheme with its own set of investors, who have approved to be part of such scheme |
| Query 3: Whether an investor who does not approve to participate in a particular scheme, they are ring-fenced from that scheme investment under Angel Fund Regulations | An investor in an Angel Fund , who does not grant specific approval to participate in a particular scheme, is not an investor in that particular Scheme. Thus, if an investor has not given approval for investment in any particular investee company, the said investor would not be part of that scheme concerning the said investee company. Therefore, for the purpose of compliance with the provisions of SEBI (Alternative Investment Funds) Regulations, 2012, with regard to Angel Fund, investors in each Scheme are ring-fenced from the activities of the other Schemes of the Angel Fund , in which they have not participated |
| Query 4: When an investor cannot participate in a scheme due to regulatory limitations, they will be ring fenced from that scheme investment under Angel Fund Regulations. Whether by doing so, they will not be in non compliance for their investments in other schemes where they have approved , as each scheme is independent under Angel Fund Regulations |
As stated above, an investor in an Angel Fund may selectively participate in investment schemes, each investment being a separate An investor in an Angel Fund will be considered the investor of only those specific schemes for which he has granted specific approval to participate. Further, each scheme of an Angel Fund is an independent scheme with its own set of investors, who have approved to be part of such scheme. In this regard , for the purpose of compliance with SEBI (Alternative Investment Funds) Regulations, 2012, the investor would be ring-fenced from other investment Schemes of the Angel Fund for which he has not given approval . However, with regard to other schemes in which investor is willing to invest, he may do so in those schemes after giving approval for investment in such scheme subject to compliance with provisions of SEBI (Alternative Investment Funds) Regulations, 2012 and other applicable laws |
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