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Pressure mounts to unclip wings of female angel investors

Female angel investor rule change
Sarah King, co-founder & CEO of Obu.

Calls are growing to reverse a change to angel investment rules that disproportionately excludes female investors and to launch an inquiry into how the policy was decided.

The government introduced new rules on 31 January raising the income threshold to qualify for Sophisticated Investor status – which opens up greater investment opportunities – from £100,000 to £170,000.

An open letter to Caroline Nokes, chair of the Women and Equalities Committee, has sought an “urgent inquiry” into the “regressive policy”.

The letter, seen by UKTN, is dated 26 January – before the new threshold kicked in – and has been signed by more than 140 leading entrepreneurs, investors and stakeholders.

“The new threshold will prevent women from investing in women and further entrench the gender inequality that blights British enterprise from the board level to the factory floor,” the letter states.

It adds that just 76,500 women working in the UK – 0.0048% – would be eligible under this new threshold.

“It is clear that the new rules will lead to an investment environment that is even less diverse from cultural, ethnicity, gender and geography than it is currently,” the letter adds.

After receiving the letter, Nokes raised the issue with the Treasury via four written questions on 30 January.

In response, Bim Afolami, the economic secretary to the Treasury, said that the “government recognises the significant concerns that have been raised recently about these changes”.

Nokes told UKTN she was “quite pleased” with the response from Afolami, adding that it “sounded as if the Treasury did recognise there was an issue specifically for women with the new thresholds”.

The MP for Romsey and Southampton North added that “whether that is translated into a change is a different matter”.

Nokes said she is unable to commit to an inquiry as that decision is made by the committee as a whole.

The Conservative MP suggested that the issue could also be picked up by a “one-off session” with the Treasury or the Treasury Select Committee’s ongoing inquiry into sexism in the City.

Emma Wright, partner at law firm Harbottle & Lewis and one of the driving forces behind the open letter, told UKTN that the focus now is to spur the government into reversing the threshold change in the Spring Statement next month.

Last month, thousands signed a separate open letter – organised by the Startup Coalition, the Entrepreneurs Network and the UK Business Angels Association, among others – calling for Chancellor Jeremy Hunt to reconsider the changes before they took effect.

However, it later emerged that there was no legal mechanism to change the financial promotion rules in such a short time period.

Female angel investors ‘critical’ for growth

There will be an estimated 70% fall throughout the UK in the number of women able to invest in startups on the basis of income, the letter to Nokes states.

Angel investors say this will have a dramatic knock-on effect on the number of female-founded businesses that receive funding.

“By investing in early-stage startups, angel investors shape the world we live in,” said Sarah King, founder and CEO of Obu, a women-centric investment platform, and a signatory of the open letter to Nokes.

“Therefore, diversity in our angel investor population is critical for economic growth, innovation and in fuelling customer choice.”

King added that shutting out underrepresented demographics from angel investing would reduce the diversification of wealth in the UK from returns that might arise from successful investments.

“The decision by Treasury to increase the financial thresholds stifles the diversity and growth we need in the UK which is why I’m continuing to call on the government to overturn this decision,” King said.

The open letter cites data showing that all-female-founded businesses received just 2% of VC funding in 2021 and that just 0.14% went to black women-led businesses between 2013-2021.

“This may seem like a tech-only issue and highly elitist but it is not,” said Suki Fuller, founder of Miribure and co-chair of the Global Tech Advocates Black Women in Tech.

“For many small businesses, the first port of call beyond friend and family or a bank loan when resources have been exhausted are angel investors.

“That group of people are usually women and underrepresented individuals – this new threshold is implicitly biased and exclusionary.”

Changes to the financial promotion exemptions were subject to a Treasury public consultation, which closed in March 2022.

The Treasury said that “respondents to the consultation were broadly supportive of the changes being made”.

A Treasury spokesperson told UKTN: “We continue to engage with representatives of the sector.”

Read more: Lobby group suggests policies to ‘mitigate’ new angel investor rules