The updated definitions for sophisticated investors and high-net-worth individuals in the UK’s financial promotion rules are having a significant impact on the tech startup and investor landscape. The increased salary and net asset thresholds, along with the removal of the qualification based on previous investments in unlisted companies, are creating challenges for angel investors and, in particular, for supporting female-led startups and SMEs.
From January 31 2024, the salary threshold for a high-net-worth individual investor increased from £100,000 – a level set in 2005 – to £170,000. The net asset threshold increased from £250,000 to £430,000.
The intention behind these changes is to add a layer of protection for investors by evaluating risk. However, the unintended consequence seems to be a reduction in the overall capital available to startups, as it creates a smaller pool of eligible investors. This is particularly concerning for angel investors who play a crucial role in supporting emerging companies.
The shift towards a London-centric and non-diverse angel investing landscape is seen as a departure from the previous dynamic nationwide growth facilitated by angel investing. The new definitions are criticised for disproportionately affecting underrepresented groups, including female-led startups, and hindering the inclusive and diverse nature of angel investing.
The disappointment expressed comes from the belief that the ability to ascertain risk among experienced angel investors is not reflected in the new sophisticated investor definitions. The emphasis on income figures alone, coupled with regional variations in salaries, further exacerbates the impact on potential investors.
It calls for a pragmatic approach to undo the damage caused to the tech ecosystem, emphasising the importance of deal experience in angel investing. It also highlights in the absence of a direct U-turn from the chancellor and expresses concern that the new policy may limit opportunities for angel investors with proven experience in supporting unlisted companies.
(Source: UKTN)