SEBI's Startup Reforms: ESOPs, Angel Flexibility, & Co-Investment Push

In a bold move that could reshape the future of India’s startup economy, the Securities and Exchange Board of India (SEBI), during its 210th board meeting this week, approved a set of targeted reforms designed to boost startup listings, unlock capital, and simplify early-stage investing. These reforms mark a strategic shift in how India supports its new-age entrepreneurs and their funding journey—from seed to IPO.

This isn't just regulatory housekeeping—it’s a signal. India is building a more robust, founder-friendly, and investor-attractive startup ecosystem, one that matches the scale and ambition of its innovation landscape.

Founders Win Big: SEBI’s New Startup Rules Unlock Growth and Exit Opportunities

India is already the third-largest startup ecosystem in the world. But a major bottleneck persists—startups find it difficult to access growth capital beyond Series A, and investors often struggle with exit opportunities. These challenges restrict not just capital flow, but also innovation and scalability.

SEBI’s reforms directly tackle these structural issues by making the regulatory framework more inclusive, flexible, and aligned with the needs of both founders and investors.

Let’s break it down:

1. ESOPs for Founders: Driving Retention and IPO Confidence

For the first time, SEBI has allowed founders to retain Employee Stock Option Plans (ESOPs) that were granted up to one year before an IPO filing. Until now, ESOPs were largely seen as tools to retain employees—but this reform acknowledges founders as long-term value creators who deserve similar incentives.

Impact:

• Encourages founders to stay committed through the IPO process.
• Makes startup IPOs more attractive by aligning founder incentives with public market performance.
• Improves investor confidence and smoothens exit strategies for early investors.

2. Co-Investment Vehicle (CIV) for AIF Investors: Unlocking Smart Capital

SEBI’s introduction of a new Co-Investment Vehicle (CIV) allows accredited investors to co-invest alongside Category I and II Alternative Investment Funds (AIFs). This brings more transparency, cleaner cap tables, and shared due diligence.

Impact:

• Enhances deal access for experienced investors.
• Reduces regulatory friction and complexity in deal-making.
• Enables faster capital deployment into high-potential startups, especially in underserved sectors or Tier 2/3 markets.

3. Accredited Angel Investors: Credibility Meets Flexibility

Angel investors now need to be accredited—bringing a higher level of professionalism and credibility into the early-stage funding ecosystem. More importantly, the investment window has been widened dramatically: from the previous ₹25 lakh–₹10 crore limit to a more flexible ₹10 lakh–₹25 crore.

Impact:

• Smaller, serious investors can now participate, fueling more diverse early-stage funding.
• Bigger cheques with reduced compliance burden will help promising startups scale faster.
• Builds trust between startups and investors by raising the bar on who qualifies as an angel.

The Larger Picture

These reforms are not just regulatory tweaks—they’re part of India’s strategic intent to become a global innovation hub. By institutionalizing co-investment, enhancing founder incentives, and making early-stage capital more accessible and credible, SEBI is playing a catalytic role in India's startup journey.

As more Indian startups eye IPOs—not just in India but also in global markets—this push will prepare the ground for sustainable, transparent, and growth-driven capital markets.

And for the thousands of startups hustling in co-working spaces, coding through nights, and chasing product-market fit, this is a message: India has your back.