For angel investors and business founders, 31 January will mean more than just the tax return filing deadline this year. New rules come into effect that have the potential to further limit the ability of female founders to access funding. Private investors need to be “certified” as either ‘high net worth’ or ‘sophisticated’ in order to be become eligible angel investors for the purpose of exemption from regulations governing financial promotions – frequently relied on by the likes of angel syndicates, VCs and companies themselves to, say, present business cases.
The ‘wealth’ thresholds for certification are increasing with effect from 1 February, with annual income requirements nearly doubling from £100,000 to £170,000, and the net assets threshold increasing from £250,000 to £430,000. The government’s rationale is, broadly speaking, recalibrating the thresholds in line with inflation - having been static since 2005 (which, it should be noted, it has not been quick to do when it comes to tax thresholds and allowances, many of which have been frozen for years…), and reducing the risk to investors of losing more than they can afford. However, many have pointed out a potentially major unforeseen consequence.
Given there are only 72,500 women in England earning more than £170,000 (compared to 237,000 who earn over £100,000), and acknowledging that most funding to female founded businesses is provided by female investors, there is a real risk that female entrepreneurs will be adversely impacted by the new rules. With the pool of available female capital about to shrink significantly, a selection of angel investor groups is lobbying hard for the government to rethink.
Not only would startups suffer due to reductions in the amount of capital available, but the change would also disproportionately impact women and other underrepresented groups in the investment community.