Angels fear consequences of FMA wholesale investor test case
Angel investors are concerned their ability to invest in startups could be in jeopardy if the Financial Markets Authority gains support for its stance on wholesale investors’ eligibility.
Thursday, January 23rd 2025, 8:54AM
by Kim Savage
Angel investors are concerned their ability to invest in startups could be in jeopardy if the Financial Markets Authority gains support for its stance on wholesale investors’ eligibility.
The FMA has asked the High Court for help clarifying the law around eligible investor certificates, with the regulator and industry in disagreement about how to interpret the exclusion rules for investors with enough experience to forgo the usual protections retail investors receive.
If the FMA proves its position, it could result in wholesale investors needing to provide more detailed evidence of their relevant investment experience and place higher expectations of due diligence on those offering the investment opportunity.
Angel Association New Zealand chief executive Bridget Unsworth wants to meet with the FMA to better understand what it hopes to achieve.
“While I definitely don't want to see investors lose money, I also want to make sure that we're not creating this framework that then makes it really difficult for investors that do have the smarts and want to invest.”
“If they go to invest in AI technology, do they have to then prove that they've got the requisite AI experience to justify their investment? And then does that go to the flip side?
Clarity needed on how investor clubs can comply
The extra lengths wholesale investors may have to go to to prove they have adequate experience, as well as the right type of experience would have an impact on investor clubs, where expertise is shared among members, says Unsworth.
“I have signed my wholesale investor certificate, so I've got the requisite experience, then through Angel HQ, I can invest in startups.
“So does that mean Angel HQ now, as a membership organization, is going to have to prove every single time that any one of their members have got the experience to be able to invest, because that's huge.
“Let's look at the much bigger picture here, and what that could mean for our ecosystem, for the venture capital ecosystem, and then for the New Zealand economy as a whole,”
“Some of these angel groups have got 200 to 300 members in their club, and so where does the liability lie?”
There is a risk startups could shy away from seeking funding from angels, especially investor groups, because the due diligence on investor eligibility could become too hard and time consuming for founders, who are already spending months out of their business focused on raising capital, says Unsworth.
The association is seeking feedback from its members ahead of conversations with the FMA and government about the potential knock-on effect of putting up barriers to investment in startups.
“Let's look at the much bigger picture here, and what that could mean for our ecosystem, for the venture capital ecosystem, and then for the New Zealand economy as a whole,” says Bridget Unsworth.
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