Angel Networks: Meaning, Functions And Various Concerns Of SEBI
What are the Angel networks? What do they do? Why SEBI is concerned about them?
Angel Networks are the networks that provide a bridge between the startups that are seeking money in the form of investments and the faceless investors. The Angel Networks connect with the start-ups to find the methods of investment desired by them. Then, they contact investors through means of publicity or otherwise and get them to invest in the start-ups. Their function is particularly important for the lesser known start-ups because they help these start-ups to get access to quick seed money, which may be a time taking process in the formal stock exchange system wherein lesser known organizations cannot compete to attract regular investors at a quicker pace.
However, the Securities Exchange Board of India has raised several concerns over the functioning of Angel Networks. The main contention of SEBI is that these networks have been systematically flouting the securities market laws of India. There is a fear that they act like informal stock exchanges by playing matchmakers in the equity or debt markets without being legally authorized to do so by the stock market regulator of India. There are also claims of violation of rules of private placement as they have facilitated issuing of securities to more than 200 investors.
Although the Securities Contracts (Regulation) Act, 1956 defines stock exchange as any entity that assists in dealing with securities (even unlisted ones), it cannot be widely interpreted to allow misuse by any arbitrary adviser or investment banker. At present, it is being determined as to whether funds raised by these routes can be a ‘deemed public issue’ as per the Act. There are also concerns that in the name of angel networks many of the organizations are following unauthorized electronic platforms and channelizing illegal money. Thus, SEBI with the power granted to it under Section 11 of the SEBI Act, 1992 to act in the manner it thinks fit to protect the interest of investors, has asked these angel networks to furnish all the details of their working. These include mode of operation, details of companies that have raised fund till date, number of investors, restrictions, compliance with Company law with respect to private placement etc. Understanding the fact that bringing in angel networks under the formal market will scuttle innovation and entrepreneurship owing to lack of finance, the SEBI has decided to relax some securities market norms for them but a regular audit of their transactions have to be made.
