Steve Holt is Director of Angels Invest Wales, part of the Development Bank of Wales Group. He explains what the new rules for angel investing mean for high-net worth individuals in Wales.
It’s almost 20 years since the Treasury last updated their criteria for self-certified High Net Worth ‘sophisticated’ investors. In the last two years, the Treasury and Financial Conduct Authority (FCA) have consulted on proposed changes to this criteria with the new rules coming into force today (January 31).
Of course, after a period of 20 years, the update is needed to keep pace with a changing world. This is something that we’ve been watching closely at Angels Invest Wales as we continue to monitor the impact of the new criteria, while also to encouraging diversity and promoting the benefits of angel investment to both entrepreneurs and high-net worth individuals alike.
So, what do the new rules mean for angel investors operating in Wales? In order to comply with the Financial Services and Markets Act 2000 (FSMA), all high-net worth individuals and self-certified sophisticated investors must complete an updated investor statement and declaration that reflect the new criteria for being considered as a ‘sophisticated investor’.
In summary, the main changes are:
- an increase in the annual income threshold from £100,000 to £170,000
- an increase in net assets required from £250,000 to £430,000 or more (excluding pension or home equity)
- being a Director of a company with a turnover of at least £1.6 million rather than £1 million.
The increased thresholds could feel daunting and challenging for many angels. However, there are exceptions, including those that have been a member of a network of business angels like Angels Invest Wales or Women Angels of Wales for more than six months, who will still qualify to be treated as a self-certified sophisticated investor. They can therefore complete their statement and continue to receive investment proposals and make equity investments through our digital platform.
Here at Angels Invest Wales, it’s our mission to make sure that investors are aware of industry regulation, policy and support available to invest effectively, helping founders and entrepreneurs in Wales can raise the money they need to grow and scale their business.
We are firm advocates of best practice and have a strong commitment and duty of care to our investor network. Indeed, we’ve been working with our technology partners - platform supplier Delio - to ensure all 300 of our angel investors have a seamless, streamlined process to re-sign the investor statement and comply with the new regulations. A simple click of a button is all that is needed to update the details for existing investors and we urge our network to do this.
Angel investing can bring high financial reward for investors, but it can also bring high risk. Angels have to accept that there is no protection from the FCA, the Financial Ombudsman Service or the Financial Services Compensation Scheme and there’s the real possibility that an investor could lose all of the money invested.
That’s why we’re focused on making investors aware of the risks and advising on the regulatory framework that underpins this activity as this helps to protect the angel and the entrepreneurs. Becoming a member of a network like Angels Invest Wales offers an additional layer of support and guidance; think of it as quality control, a safety net that provides advice on good governance, due diligence and industry best practice. Importantly, membership also provides a supportive community and the opportunity to make connections with other investors and expand deal flow by investing as part of a syndicate. This not only builds investor knowledge but also shares financial risk.
There is an increasing industry trend for angels to pool their money and their experience by investing together as a syndicate. While working with ambitious entrepreneurs can be exciting, being an angel can also be a lonely place and early-stage equity investing can feel speculative, so the support of like-minded investors in a network or syndicate can provide financial, practical and even moral support.
Angel investment is about more than just money. Angels offer real business experience, advice mentoring and support. Businesses that receive investment will generally benefit from the investor’s time, skills, contacts and business knowledge. Personally, I would argue that this advice can be worth as much as the money invested.
The support that we provide to our registered members is underpinned by significant co-investment from our innovative Wales Angel Co-investment Fund. It is a fund that effectively doubles the firepower of lead investors and syndicate investment with match funding for approved applications.
Approved syndicates can apply for support though the Angel Co-investment Fund in Wales, which provides match funded equity investment to selected angel funding rounds.
The criteria for some aspects of angel investing may have changed today. but that shouldn’t deter any of our existing investors or high-net worth individuals that are considering future investments into Welsh businesses, because however often regulations or laws might change, what won’t change is that we’re here to help.
We’ll continue to provide guidance on legislation, supporting and promoting all facets of angel investing in Wales while connecting quality Welsh businesses seeking private investment with active investors through our digital platform and the Development Bank of Wales’ angel co-fund.