New high net-worth definitions bring ‘unintended consequences’ for women investors
Changes to what constitutes a high net-worth individual are likely to have the unintended consequence of negatively impacting on female investors and women-founded businesses in Scotland.
From 31 January 2024, new regulations under the Financial Promotions Order mean that high net-worth individuals are classed as having an annual salary of £170,000 or net assets of £430,000. Previously, the salary and asset thresholds were £100,000 and £350,000 respectively.
With these changes, it now means a drop from 14,000 to 3,500 women in Scotland who will be classed as being high net-worth, reducing the pool of potential angel investors active in Scotland.
The new rules were first announced by Chancellor Jeremy Hunt in November and are designed to tighten regulations around financial promotions.
The Scottish Government’s Pathways report last year into women in entrepreneurship highlighted the existing challenges faced by women seeking investment, pointing out that one in five entrepreneurs in Scotland are women, and only 2% of institutional investment goes to women-led companies.
Paula Skinner, a partner in the corporate team at Harper Macleod who specializes in advising businesses seeking investment, reckons the new regulations will have a disproportionate effect on female investors and founders.
The opportunities for women-led businesses to secure investment are already challenging, so it is highly likely we’ll see the unintended consequences of these changes meaning opportunities become even more scarce for entrepreneurs who are women.
We also know that entrepreneurs who are women start and grow businesses in sectors that are important to the Scottish economy, such as retail, food and drink, and the creative industries, so there could be a negative impact on wider society.
Anything that sends the message that it is becoming harder to start and grow a business, regardless of gender, needs to be challenged.
Gillian Fleming, director and co-founder of women-led angel investor Mint Ventures, commented: Mint Ventures enables women to join that are not high net-worths, via the validation rule of being a member of an angel group for six months.
Mint is one of the few angel groups that makes angel investing so accessible to women and offers this route into angel investing with an established online six-month training program to support angels.
We need to see updated FCA criteria that reflect the gender pay gap and acknowledge education rather than timescales as a route into angel investing.
Gemma Stuart, founder of Gut Wealth, said: I plan to raise investment in 2024 for my health business Gut Wealth and in very real terms, my pool of people eligible to be angel investors will immediately shrink by over 70% in Scotland.
While we should be concerned about this for Scotland, as a female founder too, looking at the decline in women who would be eligible to be angel investors across the UK is a stark reality that this well-meaning policy change has failed to see the impact on businesses and investors outside the London bubble.
The changes to the high net-worth definitions will have significant ramifications for women investors and women-founded businesses in Scotland. The reduction in the number of women classified as high net-worth individuals is a blow to the pool of potential angel investors in the country. The Scottish Government’s Pathways report has already highlighted the challenges faced by women seeking investment, and these new regulations are likely to exacerbate those difficulties. Paula Skinner, a corporate advisor, warns that the changes will disproportionately affect female investors and founders, potentially limiting opportunities for women-led businesses even further. Gillian Fleming of Mint Ventures suggests that the Financial Conduct Authority (FCA) should update the criteria to reflect the gender pay gap and consider education as an alternative pathway into angel investing. Gemma Stuart, founder of Gut Wealth, shares her concern about the immediate shrinkage of eligible angel investors for her health business and emphasizes the broader impact on women and businesses across the UK. These unintended consequences of the revised regulations call for a reevaluation of the criteria and support for women in entrepreneurship, ensuring that opportunities for investment are accessible and equitable.
