Despite backlash across the UK tech sector, and outrage across the North, an increase to the financial threshold for angel investors will take effect from today.
From 31 January, a ‘high net worth individual’ will now need an annual income of £170,000 in the last financial year – a big jump from the previous income of £100,000 – or net assets of at least £430,000.
The controversial policy, which emerged following a consultation with HM Treasury, sparked concerns across the tech community about the impact it will have on not only under-represented groups of investors and founders, but the wider early-stage ecosystem.
Startup Coalition led a campaign against the “detrimental” changes a week ago, urging the Chancellor, Jeremy Hunt, to reconsider the policy in an open letter.
The letter laid out the tech sector’s concerns including how the start-up ecosystem and female and underrepresented founders will be “hit hard” by reducing the amount of capital available. It also states these changes could lead to angel investing becoming an “elite-only activity” and will undo “huge amounts of good work to address this gap”.
Despite gathering over 2,000 signatures and a “huge” response from the tech community, a recent update from Startup Coalition said while the government had been engaging, changes to the policy at this late stage would have required a debate in Parliament.
It means that while the changes cannot be “directly reversed” at the moment, a meeting is in the works this week with economic secretary to the treasury, Bim Afolami, who is set to sit down with representatives to discuss a way forward.
An update since this piece was first published: In a further statement, the Startup Coalition said Afolami had met with industry representatives on Wednesday to listen “carefully to concerns”, so there are hopes there will be a solution to find a way forward.
Female founders, investors, and underrepresented groups in the North will encounter “additional hurdles”
Once again, it seems like the North’s tech sector will be negatively impacted if the policy isn’t revised. Tech leaders, investors and founders across the North have taken to social media to voice their concerns.
“This is something to get angry about,” said Rachel Swann, CEO at hybrid workspace platform UMA in a LinkedIn post. “It’s counter intuitive, doesn’t work for female investors nor for female founders – nor for ANY founders, It’s misogynistic and outdated and I am staggered how this government thinks that this is acceptable in any way?”
Gordon Bateman, founder of Investor Ladder and investor event Climb24, agreed with Swann and told us that the changes have raised “pertinent concerns” when it comes to gender equality.
He said: “The revised criteria for high net worth individual registration poses a notable impact on investors which has the potential to affect underrepresented groups, including women. With the heightened barriers to entry, and the persistent gender salary gap, females face amplified challenges in opting out of financial promotions approvals.
“Consequently, this also extends to female founders seeking investment. It is widely recognised that, whilst there has been an increase in female founders successfully securing investment, this has been in part due to an increase in the number of female investors, and hence they will now encounter additional hurdles in securing funding.
“This dynamic unfolds against the backdrop of an increasingly challenging environment for founders looking to access early-stage funding. However, there are alternatives for underrepresented groups to engage in early-stage investment opportunities.
“One notable initiative is Equity Gap, an FCA authorised and regulated angel syndicate that adopts an inclusive approach to investor membership. By eschewing traditional wealth metrics, Equity Gap prioritises collaborative discussions to assess investors’ comfort levels with the inherent risks associated with angel investing. This progressive approach not only democratises investment access but also fosters a more inclusive investment ecosystem.”
David Levine, who is principal at Manchester Angels, a mentor at Baltic Ventures, and investment mentor at UK Space Agency, commented: “I believe these changes will have a negative effect on the early-stage ecosystem by putting more obstacles in front of angels who wish to invest in high-growth potential businesses. Particularly concerning is the disproportionate impact this will have on female and other diverse investors who already invest at far lower levels than others.”
Over on LinkedIn, Zandra Moore, CEO and co-founder at Panintelligence said it is a “huge backwards step for our economy”, adding that it will result in “locking more women out of wealth creation and skewing innovation and growth in our country into predominantly male founded businesses”.
“This will be felt most acutely across the North”
The new changes will have consequences for tech companies based in the North too, according to Andrew Noble, partner at venture capital firm Par Equity. He said the changes could have “damaging unintended consequences for technology ecosystems outside of London, and for underrepresented founders”.
These consequences include an “immediate contraction in the EIS Fund market, restricting inflows into funds managed by VCs across the UK, who are investing in early stage companies. This will be felt most acutely across the North of the UK, as many investors like to back managers who are deploying in local markets to them”.
He added the new policy will also “make it harder for new angel investors to enter the market and build necessary experience and networks to be successful” as angels “typically invest more locally and back founders who they identify with”.
He believes this will cause a disproportionate reduction in the number of angels who are based in the North and “therefore a contraction of capital for tech companies in the North”; fewer female angel investors ready to back female tech entrepreneurs; and fewer angel investors from ethnic minority backgrounds.
