New financial promotions rules harm women and minority investors

I’m not one to get on a soapbox. But the challenges affecting women and minority investors deserve widespread attention.

At the beginning of the month, changes were made to the UK Financial Promotions rules. The changes impact Certified High Net Worth and Self-Certified Sophisticated Investors who are often instrumental in bringing the first tranche of capital into budding startups.

Under the changes, Certified High Net Worth Individuals who previously were able to certify based on a gross annual income of £100,000 as a minimum, or net assets of £250,000 in the last fiscal year, will now only be eligible with a gross income of £170,000 or net assets of £450,000.

Similarly, Self-Certified Sophisticated Investors who haven’t worked in private equity or in the provision of finance for small or medium sized companies in the previous two years will need evidence of being a director of a company with annual revenues of over £1.6m in the last two years. As well as this being an increase in the previous threshold of £1m, you can no longer qualify by virtue of having made more than one investment in an unlisted company over the previous two years.

So what’s the big deal?

According to a report by the UK Business Angels Association, only 14% of the UK’s 37,000 angels are women, and over the 10 years prior to the publication of the report, they had deployed over £2bn into more than 4,000 businesses. Of these businesses, almost 25% invested in by female angels were female founded startups (compared to 19% across all angels). Whilst this report is from 2022, it is unlikely that these numbers will have changed substantially in the 16 months since.

A report by the Office for National Statistics states that In 2023, the gender pay gap among full-time employees increased to 7.7%, up from 7.6% in 2022. On top of that, research from 2018 found that  the difference in pay by gender continues to widen in the top tiers of income, with 470,500 fewer women earning more than £100,000 than men, jumping from 383,400 in 2010/11.

So in having changed the thresholds, women (and minorities who also tend to earn less) are being squeezed out of the angel ecosystem - and this is before one looks at further regional disparities in income thresholds.

As someone that has advocated for more diversity in the startup landscape, both on the investor as well as founder sides of the table, I don’t believe this is the direction we want to take.

Angels are an incredibly important part of the early stage ecosystem, as research by the British Business Bank shows. We need to ensure that by trying to protect some individuals, we don’t end up disenfranchising a whole demographic cohort by accident.

If you also feel like this is something worth getting on your soapbox about, as a first step, add your voice to this Open Letter to the Chancellor and let’s all advocate for more diversity in the ecosystem - not less.

Aarish Shah is the founder of EmergeOne, a consultancy providing fractional CFO support to venture capital backed startups from seed to Series B, and the host of Nothing Ventured, a podcast exploring the venture ecosystem.