Government ministers in the UK have agreed to meet with angel investors and entrepreneurs in an attempt to address mounting concerns over recent changes to the country's "angel investor" program. The government plans to raise the income threshold for qualifying as an angel investor from £100,000 to £170,000. Critics argue that this move will negatively impact diversity within the startup community, as fewer women and individuals from ethnic minorities will meet the newly established criteria.
Despite lobbying efforts from various angel investor organizations, the changes are set to take effect on January 31, according to sources familiar with the matter. Reversing the legislation would require a parliamentary debate, which cannot be carried out before Wednesday. However, Economic Secretary to the Treasury, Bim Afolami, has agreed to meet with angel investor representatives next week, offering a glimmer of hope for campaigners.
The Startup Coalition, in a letter to campaigners, stated that Business Minister Kevin Hollinrake would also write to his Treasury colleagues to urge them to address the growing backlash. The Coalition expressed satisfaction that the government has been engaging with their concerns. It appears that the Treasury acknowledges the strength of their case and is keen to find ways to mitigate the situation.
Nonetheless, campaigners find it "extremely disappointing" that the changes to the Financial Promotions Act cannot be reversed before coming into effect. According to research by Alma Angels, a network dedicated to increasing funding for female-led businesses, no more women will qualify as angel investors in Northern Ireland and the North East as a result of these changes. This reduction in women investors could have detrimental effects on businesses in those regions. Data suggests that men are less likely to invest in companies founded by women, making gender diversity in angel investing even more crucial.
The Financial Promotions Act governs the rules for approaching potential investors for business funding. The recent changes stipulate that angel investors must now have an annual income of £170,000 (previously £100,000) or net assets (excluding primary residence) of £430,000 (previously £250,000) to be eligible. Additionally, having experience investing in unlisted companies no longer qualifies, and now having a job in private equity or small and medium-sized enterprise financing is required. Other eligibility criteria include being a director of a company with a revenue of at least £1.6 million (previously £1 million), or being an active member of an angel investor network for more than six months.
The changes were proposed in response to a surge in investors entering the market to allocate their savings during the Covid-19 pandemic. Concerns were raised over insufficient safeguards to ensure investors fully comprehended the associated risks. However, since the introduction of these changes, funding flow to startups has decreased, according to Roxane Sanguinetti, co-lead of Alma Angels. Sanguinetti's research reveals that around 70% of women who currently qualify as angel investors will no longer meet the new criteria, with regions with lower average incomes being the most affected.
Critics argue that the revised regulations will exacerbate issues of inclusivity within angel investing by favoring wealthier individuals and perpetuating a lack of diversity within the sector. Sanguinetti emphasizes the importance of allowing women to invest according to their own preferences, using the wealth they have earned. She cautions against creating a landscape that is even more male-dominated, concentrated in London, and lacking in diversity as a result of these changes.