NEW regulation around angel investment could pose a 'considerable threat' to North East businesses.

Recently introduced legislation – brought in under the Financial Promotions Act on 31 January - threatens to completely wipe out the number of eligible female angel investors in the region and reduce eligible male angel investors by almost 70%.

The threshold for 'high net worth individuals', the formal term for angel investors, required an annual income of £100,000 or net assets of £250,000. However, the new thresholds for the ‘angel investment’ criteria will be hiked to require annual earnings of £170,000, or net assets of £430,000.

Legal experts on Teesside say those failing to meet new criteria may no longer be able to benefit from attractive tax relief schemes and benefits, which act to incentivise start-up investment for angels paying tax in the UK. The two main schemes being the Enterprise Investment Scheme (EIS) (encouraging investment in early-stage, higher-risk businesses) and the Seed Enterprise Investment Scheme (SEIS) (designed for investment in very early seed or start-up stage businesses).

Vanessa Saleh, corporate solicitor at Square One Law, said: “The rationale behind the changes may be well-intentioned to protect investors, but the impact of applying it could be incredibly damaging for North East start-ups, scaling businesses and the wider economy.

“These changes significantly reduce the pool of those who previously qualified as angel investors, and risk almost completely wiping out eligible women investors altogether while making it more difficult for women-owned companies to obtain investment. Worst impacted will be the regions outside of London, with the North East potentially hit the hardest where income levels are significantly below the national average.”

“Only last year, we saw substantial reduction in venture capital funding compared to the previous year,” added Vanessa.

“And statistically only 2% of venture capital funding in the UK went to women-owned or women-led businesses – another worrying trend”.

Concerns from the business community have been raised directly with the UK Government, including an open letter from the Start-up Coalition – made up of nine independent angel investor organisations - about the impact of these changes, with fears already fuelled by a fall in start-up investment over the past year.

Square One Law managing partner, Gill Hunter, said: “Angel investors are essential to many growing companies, especially in the North East where access to finance can be challenging.

“For the North East to potentially lose all of its eligible female and two thirds of its male investors is unthinkable. The legislation seems to ignore the regional and demographic differences in the earnings and net worth of individuals and we need incentives to encourage investment, not steps to curtail it.

The Northern Echo: Lisa EatonLisa Eaton (Image: Submitted)

“The North East has a thriving tech sector where angel investors and tech start-ups go hand in hand. Not only will we there be a reduction in the number of investments, but we’ll unfortunately see an impact on the number of women-led ventures due to the decline of women angel investors - data tells us that women back women.”

Newcastle entrepreneur Lisa Eaton secured six angel investors from the North East for Fabric Academy, an on-line platform designed to educate and support marketing professional worldwide, in the businesses first seed raise in 2023, to accelerate its growth globally.

“I’m really struggling to see any positives in the new legislation at all,” she said.

“Not only will this change have a negative impact on the number of female angel investors, of which there are so few anyway, but also on the number of female founders securing investment and starting businesses.

“Angel investment is the lifeblood of business start-ups and was vital to us. As a technology company, we bootstrapped the business to launch the product, but required capital investment to reach our ambitious growth plans.  Anything that makes it more difficult to invest in new businesses, particularly female led businesses, is counter-productive and a regressive step.”