Don’t clip the wings of fledgling angel investors
The recent proposed adjustments to the angel investor threshold by the Treasury were set to mark a notable shift in early-stage investments in the UK, hitting those belonging to underrepresented groups the hardest.
We welcome the government’s decision to reverse these proposed changes in the Spring Budget and recognise the crucial role of angel investors, particularly in areas underserved by investment.
While I understand the intent behind the proposed changes the unintended consequences of these revisions must not be ignored. Fca-regulated firms, like Par Equity, already have to apply suitability and appropriateness tests when promoting products to clients. What this means is that unregulated companies, such as pre-seed and seed stage start-ups raising capital from individuals, would have been hit the hardest.
If the changes were adopted by the FCA, then it would have resulted in the immediate contraction of the Enterprise Investment Scheme (EIS) Fund market. Localised investments play a major role in supporting and fostering early-stage companies, and this contraction would be disproportionately felt across Scotland and the North of the UK. These changes would also pose a challenge for firsttime VC funds, intensifying the already exclusive nature of the industry.
The impact it would have on new angel investors is also concerning. Raising the financial bar for qualification would not only diminish available capital, but also negatively impact underrepresented groups, particularly female investors.
In Scotland alone, there would be a staggering 75 per cent decrease in eligible female investors due to the raised income threshold. This reduction in available capital for startups in regional markets would pose a legitimate threat to diversity within the UK startup ecosystem.
At Par Equity, we are committed to supporting innovative startups in Scotland and the North of the UK. It’s now more important than ever to continue to place a real focus on supporting early-stage businesses in these regions, to contribute to improving representation in the tech sector. We encourage government and regulatory bodies to consider the second order effects of their policy decisions – public and private sector collaboration is needed to unlock social and economic impact in Scotland and the North of the UK.
Andrew Noble, Partner at Edinburgh-based VC firm, Par Equity – winner of UKBAA’S Angel Group of the Year 2021 and 2023