Looking to provide an impetus to the early-stage startup ecosystem, markets regulator Sebi plans to reduce minimum angel fund investment for venture capital undertakings to Rs 25 lakh from the current Rs 50 lakh.

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Sebi may also allow the angel funds to make overseas investments up to 25 per cent of their investible corpus, in line with other Alternative Investment Funds (AIFs). The move will make such funds to spread their risk by investing across geographies, sources said.

There are many start-ups that require a smaller amount of validating proposition and bringing down the limit to Rs 25 lakh will help such companies raise funds at the initial stage of idea generations.

Also, the Securities and Exchange Board of India (Sebi) plans to align its definition of startups with other regulations. As per Sebi guidelines, angel funds can invest in startups that have been incorporated during the preceding three years from the date of such investments. This may be changed to five years.

Investment by an angel fund in a venture capital is locked in for three years. This is likely to be changed to one year. There are plans to amend the upper limit of number of angel investors in a scheme to 200 from the current 49.

The board of Sebi is expected to discuss a proposal to make amendments to AIF regulations with respect to angel funds later this week, sources said.

Angel funds, a sub-category of AIF, encourages entrepreneurship in the country by financing small startups at a stage where such firms find it difficult to obtain capital from traditional sources of finance such as banks and financial institutions.

In addition, angel funds offer mentoring to entrepreneurs as well as access to their own business networks. Currently, 266 AIFs are registered with Sebi. Of which, 84 are registered under Category I, including four angel funds.