SEBI: Only Accredited Angel Investors Can Now Invest in Startups!
- Jasaro In
- Jul 29
- 4 min read
Angel Investing in India Gets a Reality Check.
In the past few years, Angel Investing in India looked like a party, where everyone was invited. With just ₹5,000 and a WhatsApp group invite, anyone could claim the title of “Angel Investor.” Friends pooled money, shared pitch decks, and crossed their fingers in hopes of backing the next unicorn. India’s startup boom became a grassroots movement, vibrant, wildly accessible, and chaotic. But that party’s over.
Angel Investors Now Needs to be Accredited
On June 18, 2025, the Securities and Exchange Board of India (SEBI) drew a clear demarcation. Now on, only "Accredited Investors" will be allowed to invest in Angel Funds and Co-Investment Vehicle schemes. What was once a democratized investing playground worth over ₹7,000 crore is now being gated, not to exclude, rather to stabilize.
So, why SEBI made this move, and what it means for founders and early-stage investors?
Why SEBI Stepped In: The Chaos Behind the Boom
Angel Investing was never meant to be for everyone.
Unlike public markets where liquidity is easy and exit timelines are short, angel investing is a long, high-risk game:
Over 90% of startups fail, globally and in India.
Exit timelines typically range from 7 to 10 years.
Startups are illiquid, once you invest, you can’t sell, when things go south.
Angel Funds, categorized under Category I Alternative Investment Funds (CAT-I AIFs), were originally designed for sophisticated, well-capitalized investors, who understood the startup landscape. However, as the barriers to entry fell, 1000s of new, often under or mis-informed investors entered the fray. In theory, it was financial democratization, while in practice, it turned into a regulatory time bomb.
What Went Wrong?
According to SEBI data, by March 2024:
82 Angel Funds were registered.
They collectively managed over ₹7,050 crore.
And, more than ₹3,340 crore had been deployed into startups.
This rapid expansion brought serious issues:
Investors demanded dividends prematurely, forgetting that early-stage startups burn cash, and they don’t generate returns immediately.
Disputes over Employee Stock Options (ESOPs), a critical retention tool for startups, now misunderstood or misused.
Secondary sale panic, when startup valuations dipped, retail investors grew anxious, creating unnecessary turbulence.
Essentially, short-term expectations collided with long-term realities, leading to regulatory, reputational, and operational headaches for founders and funds alike.
What are the New SEBI Regulations?
The Key Change: Only Accredited Angel Investors Can Now Participate
To restore sanity, SEBI made accreditation mandatory for anyone investing in Angel Funds or Co-Investment Vehicles.
Who Qualifies as an Accredited Investor?
As per the revised SEBI guidelines:
Individuals must earn ₹2 crore or more per year, or
Have a net worth of ₹7.5 crore, with at least ₹3.75 crore in financial assets.
Accreditation can be obtained via CAMS, NSDL, or CDSL, the official agencies approved by SEBI.
This effectively raises the bar, ensuring that only high net-worth individuals (HNIs) with a deep understanding of financial risk can play the angel investing game.
What About Co-Investment Vehicles?
In parallel, SEBI also formalized the Co-Investment Vehicle (CIV) structure under the AIF framework. These vehicles allow accredited investors to invest alongside an AIF in a specific deal, without participating in the entire fund.
This gives flexibility without compromising regulatory oversight, ensuring that only eligible and well-informed investors co-invest in high-risk deals.
Why This Matters for Founders, Investors, and the Ecosystem?
For Founders: Fewer Investors, Better Conversations
On the surface, this might look like bad news, fewer investors = less capital.
The fact is, this will improve the quality of capital flowing into startups. When investors understand long-term risk, founders don’t need to:
Justify burn rates every quarter.
Explain why dividends make no sense.
Defend standard instruments like ESOPs.
Founders can now focus on building, rather than managing investor expectations.
For Investors: Game Over for Casual Angels
If you’re a retail investor without accreditation, your access to angel investing just narrowed, drastically. This might feel like exclusion, but it’s more like protection.
Angel investing is not a game for FOMO-fueled dabblers. It requires:
Patience over a decade-long timeline.
Deep knowledge of startup metrics.
Capital that can absorb complete losses.
If you're serious, work toward accreditation. Otherwise, consider regulated mutual funds, REITs, or startup ETFs, better risk-adjusted vehicles for your capital.
Ecosystem Change: From Quantity to Quality
The Indian startup ecosystem is at an inflection point. After a decade of breakneck growth, we’re seeing a shift from volume to value.
Regulations like this one from SEBI:
Encourage institutional discipline.
Reduce investor-founder conflict.
Bring clarity to fund structures and co-investment models.
In short, the system becomes healthier and more sustainable, even if it grows a little slower.
Will This Kill the Angel Investors' Spirit in India?
The Economic Times headlines suggest doom: “Angel Investors in India Will Be Rarer Than Tigers.” That’s catchy, but it misses the point.
SEBI isn’t saying angel investing should die, it’s saying it should evolve. Much like tiger conservation requires strategy, so does startup capital.
There’s already movement toward new models:
Accredited syndicates through platforms like AngelList India.
Startup-focused investment products managed by licensed portfolio managers.
Cross-border co-investment pools leveraging global VC networks.
In short, serious investors will stay, and better tools will emerge.
Conclusion: A Pivot, Not a Shutdown
SEBI’s new regulations might feel like a gate closing. But in reality, they mark a reset, one that brings focus, discipline, and sustainability back into early-stage investing. Startups don’t need 1000s of hobbyist investors. They need a handful of trusted believers who understand that success takes time, money, and resilience.
For an entrepreneur, this is good news. The capital that comes their way will now be more strategic, patient, and aligned. And, if you're an aspiring investor? Get educated. Build your capital base. Earn your accreditation. Because Angel investing is still one of the most exciting frontiers in India, just no longer open to anyone with a spare ₹5,000 and a dream.
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