Investment Committee in Angel Funds: SEBI Regulations & Onboarding Guide

Angel Funds, a sub-category of Category I Alternative Investment Funds (AIFs) under India’s SEBI (Alternative Investment Funds) Regulations, 2012, are designed to pool resources from seasoned investors and channel them into early-stage startups. These funds often employ an Investment Committee (IC) to evaluate or approve investment proposals. A common question for managers is whether IC members can be added after investor onboarding without informing SEBI. The answer depends on whether the IC serves a decision-making function or acts purely as an advisory body.

What is an Investment Committee in Angel Funds?

The IC is typically formed by the AIF manager to assist in the investment process. Its role ranges from offering strategic advice to taking binding decisions on fund investments. In 2020, SEBI formally recognized ICs through the October 19, 2020 Amendment and set clear compliance obligations.

If the IC is decision-making, its members share joint and several responsibilities with the manager for compliance with SEBI regulations and fund documents. Conversely, an advisory IC only provides non-binding recommendations, leaving the manager with full accountability.

SEBI Guidelines for Decision-Making ICs

Decision-making IC members carry responsibilities similar to the fund manager. They must ensure every investment meets AIF rules, fits the Private Placement Memorandum (PPM) and scheme documents, and complies with securities and exchange control laws. This creates real legal liability since IC members can be held jointly responsible with the manager, which often makes investors hesitant to take on the role.

Advisory IC members, in contrast, do not approve deals. Their views can influence decisions, but the risk they face is mainly reputational rather than legal. Clear roles, strong indemnities, Directors & Officers (D&O) insurance, and proper record-keeping are essential to protect members and ensure good governance.

Compliances for Decision-making ICs

Once an IC has binding approval rights over investments, three compliance consequences follow: 

1. Liability: Members are jointly and severally responsible, alongside the manager, for ensuring investments comply with the AIF Regulations, the placement memorandum (PPM), investor agreements, other fund documents, and applicable law. This duty extension is set out in the 2020 SEBI Amendment.
2. Disclosure: The names of external IC members (i.e., those who are not employees/directors/partners of the manager group) must be disclosed up front in the PPM or other fund documents at the time investors are admitted.
3. Late Additions: If you wish to induct an external decision-making IC member after investor onboarding and that person was not previously disclosed, you must first obtain consent of at least 75% of investors by value.

Decision-making ICs therefore demand disciplined document control. A change in IC composition is best treated as a material governance change: update the PPM (or equivalent investor agreement addendum), capture board/IC resolutions, and circulate to investors prior to drawing capital under the revised decision structure.

When to Seek Investor Consent

Some managers intentionally structure an advisory IC, a group that reviews deals, provides input, maybe ranks opportunities, but does not hold binding approval authority. In that structure, the legal “decision” remains with the manager; SEBI’s joint-and-several liability construct for IC members is not triggered because the committee is not the approving body. If an IC is advisory, you generally do not need 75% investor consent to add members later, and those members do not inherit SEBI-facing liability. That said, transparency remains wise, particularly where advisory members are investor representatives, so investors are aligned on process and expectations.

Angel Fund Term Sheet & SEBI Filing Requirements

Beyond investor consent, managers must consider regulatory reporting. SEBI consolidates ongoing obligations through its Master Circular for Alternative Investment Funds, which pulls together periodic filings, PPM change intimation frameworks, and merchant banker certification processes. Angel Funds operate scheme-by-scheme: under Regulation 19E(1), a term sheet must be filed with SEBI before launching each scheme. The filing requirement and the practical reality that material commercial (and governance) terms should be reflected before capital is deployed. If your Angel Fund’s decision authority shifts because a new IC member with voting rights is added, file an updated term sheet, or at minimum confirm with counsel that the change is captured in the next filing cycle before executing investments under the revised structure.

Conclusion: Getting Governance Right

You can add IC members later without informing SEBI only if the IC is configured as a non-binding advisory panel and no material amendments to fund documents are required. The moment the IC holds decision-making authority, SEBI’s 2020 governance regime activates: name external members up front, seek 75% investor consent for later additions, update documentation, and follow SEBI’s reporting pathways, including Angel Fund term sheet filings where applicable. Getting this right is less about bureaucracy and more about protecting investors, clarifying responsibility, and preserving the credibility of India’s rapidly scaling startup capital ecosystem.