New rules will reduce available finance for female and unrepresented founders, government warned
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Posted: Thu 25th Jan 2024
A government redefinition of 'high net worth individuals' has been described as "flawed" with the potential to reduce the number of angel investors, particularly women and ethnic minority groups.
New rules will be introduced on 31 January that change the criteria to qualify as a 'high net worth Individual' from an annual income of £100,000 and a net assets value of £250,000, to an annual income of £170,000 and net assets valued at £430,000.
But several entrepreneurs, investors and business groups say the changes will negatively impact the availability of finance for start-ups with female and unrepresented entrepreneurs the hardest hit.
'Huge reduction in...women able to invest in start-ups'
In an article on Sifted.eu, Roxane Sanguinetti and David Fogel from angel investment network Alma Angels said due to the number of women earning the amount used in the new definition of high net worth individuals, there will be "a huge reduction in the number of women able to invest in start-ups on the basis of income".
They warned that the impact will be felt across the UK with a 90% decline in women who could angel invest in Wales, and a 100% decrease in the North East of England and Northern Ireland.
Alma Angels is one of nine organisations which organised an open letter to chancellor Jeremy Hunt calling for the rule change to not go ahead. Describing the threshold increases as "a huge error", the letter said:
"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."
British Business Bank figures show that all-female founded businesses in the UK got only 2% of equity investment during 2022, a figure that has not improved since 2011.
The letter, which has been signed by more than 900 people including Enterprise Nation founder Emma Jones, also said the changes will mean that "angel investing risks becoming an elite-only activity, undoing huge amounts of good work to address this gap".
The other groups behind the letter are UKBAA, Extend Ventures, The Entrepreneurs Network, Angel Academe, Enterprise Alumni, Angel Investing School and EISA.
A few hours after the letter was sent to the government, Dom Hallas, founder of Startup Coalition, said in an email:
"Treasury ministers have been in touch with us to set up a meeting to find a way forward - and I'm hopeful we can find a solution.
"We'll be sitting down with them along with some of our friends in the ecosystem very shortly."
A separate petition has been launched by investor Becky Lodge. She said:
"As a female investor and an active advocate of a community of female and minority investors, I understand first-hand the importance of diversity in funding networks. It is often us, women and minorities, who fund businesses led by women and minorities.
"However, with less than 3% of angel and venture capital investments being awarded to women in the UK, it's clear that we are far from achieving equal representation.
"The proposed changes to raise angel investment thresholds will only exacerbate this issue. These changes will disproportionately affect female angels' ability to access funding networks, hindering progress towards more diverse business landscapes."
A spokesperson for the Treasury told The Times that the threshold increase was necessary:
"Where someone doesn't meet this financial threshold, they can still qualify as a 'sophisticated investor' if they have been a member of a network of business angels for more than six months.
"This will support the continued broadening of angel network participation, including among less represented groups."
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