An article printed in The Times last Friday (19th January), titled “Female ‘angels’ have their wings clipped” has garnered a wealth of attention over the last week. It highlighted that Government rules designed to protect early stage investors will negatively impact the amount of money available to start-ups founded by women and ethnic minorities.
The rules will seek to redefine what it means to be a high net-worth individual, under the Financial Promotion Order, and will increase the threshold from £100,000 to £170,000. The Financial Services and Markets Act 2000 (FSMA) states that angel investors should self-certify as a high net worth or sophisticated investor.
The full open letter penned by The Startup Coalition, and signed by UKBAA, (UK Business Angels Association), Alma Angel Network, Extend Ventures, TEN (The Entrepreneurs Network) EA (Enterprise Alumni), Angel Academe, Angel Investing School, and EISA (Enterprise Investment Scheme Association) is below.
You can also sign a petition to here to halt the proposed changes.
We, the undersigned, urge you to reverse the upcoming changes to the definition of High Net Worth Individual Investor.
The UK has built one of the biggest startup ecosystems in the world. From a few scrappy dreamers in East London, the UK startup ecosystem is now a multi-billion pound industry that is turbocharging growth in the economy.
The growth of this ecosystem would not have been possible without continued Government support through a range of policies over more than a decade. The EIS and SEIS schemes has enabled startups to raise capital at the earliest stages, providing an injection at the most precarious point in a startup’s journey.
Your own measures have continued this support: the 2022 expansion of the scheme will further support the earliest stage firms. The extension of EIS and VCT schemes will perform a similar function at a later stage. And the work on late stage capital and pension funds will tackle capital gaps as companies scale.
This work is being put at risk by the changes to High Net Worth Individual Investor rules planned to come into force at the end of January. They are anathema to the trailblazing startup ecosystem that has been built today.
The changes would mark a huge increase in wealth requirements needed to invest in startups, damaging the ecosystem at such a delicate time.
We believe the changes are wrong because:
Since they were first mooted, the investment market has changed. The changes were first proposed in 2021 when angel investing and VC investment spiked. Since then, first-cheque investing figures have fallen off a cliff, with the number of first-round seed-stage deals in 2023 down 28% year on year and at a ten-year low at 1,025. This is down from 1,973 in 2021, when this measure was consulted on.
The startup ecosystem will be hit hard. The increase in the thresholds will kick the ecosystem while it is down. Reducing the amount of capital available will limit the growth of job-creating startups, killing off the next generation of scaleups.
Female and underrepresented founders will be hit hardest. Underrepresented founders already have a harder time accessing capital. As female-led angel groups and others have warned, the changes will squeeze out more women and ethnic minority angels. We know these investors are more likely to back companies overlooked by others. This means female entrepreneurs, diverse founders and companies outside London will find it even harder to raise the funding they need.
Angel investing risks becoming an elite-only activity, undoing huge amounts of good work to address this gap. We want investing to be as diverse and open as possible. Technology such as crowdfunding and angel syndicates platforms have enabled the democratisation of the startup ecosystem. The changes risk reverting angel investing to an elite-only activity, leaving people ostracised from the growth of the UK’s tech sector.
For all these reasons and more, we believe these changes would be a huge error – and one that will damage not just individual startups but the ecosystem as a whole. We urge you to reconsider in the coming days.