“Sophisticated” or accredited investors (AIs) are individuals who have a higher understanding of the risks associated with complex financial products. To qualify as an accredited investor, the Securities 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 accreditation might make it harder for new angel investors to 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 ones, 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 feel the pinch in the short term,” Bhatia added.
At its board meeting on 18 June, Sebi mandated that an entity investing in an angel fund must be registered as an accredited investor. The regulator said the definition of angel investors, created in 2013, is outdated and doesn’t reflect today’s financial landscape.
An accredited investor must now have one of the following: an annual income exceeding ₹2 crore, an annual income exceeding ₹1 crore alongside a net worth surpassing ₹5 crore, or a net worth exceeding ₹7.5 crore.
Previously, an angel investor was characterised as an individual with net 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 10 years, and who invested 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.
Key Takeaways
- Sebi has mandated that only accredited investors can participate in angel funds, replacing outdated norms set in 2013.
- The move may temporarily slow early-stage startup funding, especially from first-time and small-ticket angel investors.
- The current accreditation process is seen as complex, slow, and not equipped to handle a surge in applicants.
- Founders in tier 2 and 3 cities could be hit hardest, as they rely heavily on informal angel networks.
- While disruptive in the short term, the change is expected to improve governance and attract more serious capital over time.
It typically takes around three business days to obtain an accreditation certificate. The certificate, valid for two years, comes 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 those obtaining it.
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Pain for early-stage startups
The immediate fallout is expected to be felt most acutely at the pre-seed and seed stages, especially in smaller cities, where founders typically raise money from personal networks and first-time angels.
Priyanka Madnani, founder & CEO at Terex Ventures, an early-stage venture capital firm, said growth-stage startups may be insulated as larger cheque sizes and institutional players will still drive capital through alternative investment funds (AIFs) and co-investment vehicles (CIVs), said Madnani.
AIFs are privately pooled investment vehicles regulated by Sebithat invest in venture capital, private equity, and other alternative assets. Meanwhile, CIVs are investment structures that allow multiple investors to pool capital and invest alongside 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 enthusiastic first-time angels, many of whom now find themselves locked out or feel like a door half-shut, till they adapt to the new regime,” said Madnani, adding that it will clean up grey areas and attract more serious capital 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 will no longer qualify. 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 prospects for emerging fund managers.”
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Capacity concerns
Some experts believe the current accreditation 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 doesn’t seem prepared to handle the load, which could slow down angel investing,” 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 National Securities Depository Ltd)—are managing the accreditation process.
Foreign investors
Singh also pointed out that the process is even difficult for global investors. Those with assets worth over a billion dollars have to submit Indian tax returns, even if they’re new to the country, said Singh.
In several countries, investors are simply allowed to self-certify their status, without needing to go through third-party checks, Singh said. “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 accreditation to Sebi-registered Know Your Customer (KYC) Registration Agencies (KRAs) might “create new operational bottlenecks unless capacity is scaled.”
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 long run.
Siddarth Pai, founder of 3one4 Capital, a Bengaluru-based venture capital firm focused on early-stage technology investments, expects this to be a temporary disruption, which is not likely to last for more than a quarter.
Pai noted that market acceptance of the current accreditation 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 accreditation 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 Data Management Limited.
The paper also said that alternative investment funds (AIFs) may be allowed to provisionally onboard investors as accredited investors on the basis of their own due diligence, subject to certain conditions.
Pai welcomed the move to let fund managers initiate accreditation but cautioned, “The only concern will be the ability of the KRAs to scale up, have a standard Standard Operating Procedure (SOP), cost effective structure 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 were ₹10,138 crore, while investments made were ₹4,134 crore.
As of 31 March 2024, there were 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.
