All members of AIF must approve investments, clarifies SEBI

The manager of an angel fund is required to take the consent of every investor in the fund before making an investment, the Securities and Exchange Board of India (SEBI) has said.

Additionally, a limited liability partnership (LLP) must have a minimum net worth of Rs 10 crore to be an angel investor, the market regulator said.

SEBI made these clarifications in a letter issued on September 17 in response to queries sent by Bengaluru-based angel investment platform LetsVenture. The platform had registered LV Angel Fund with SEBI as a category I Alternative Investment Fund (AIF) in 2018 to streamline investments through the platform. 

“Regulation 19G(3) of the AIF Regulations obliges a manager to obtain undertaking from every angel investor proposing to make investment in a venture capital undertaking, confirming his approval for such an investment, prior to making such an investment,” the SEBI clarification, a copy of which was reviewed by TechCircle, said.

“Apart from obliging the manager, the said regulation also gives a right to Angel Investor to provide his approval before any investment is made. There is no provision in AIF Regulations which provide for waiver of the said right,” it added.

LetsVenture had asked SEBI to clarify whether the AIF could “blind pool” capital and if consent from all investors was necessary for every investment made through the AIF.

In a post addressing the issue, Shanti Mohan, founder at LetsVenture said that the syndicate often had to address investors on whether it was possible to blind pool capital or why it was not possible for the lead investor to give consent for individual deals. Blind pooling capital does not give clarity to investors on how the funds will be utilised. 

“We always said this was against the nature of the guidelines issued by SEBI but investors came back saying that we were being rather conservative,” Mohan said in her blog. She added the summary of the response from SEBI: “The Angel AIF does not allow automatic consent even if there is a contractual agreement in place between any two parties. Investing in this manner is a regulatory violation.”