If you want to invest in a startup in the UK, one of the prerequisites is that you should be certified as either a high net worth or sophisticated investor.
One reason is that high net worth and sophisticated investors provide essential resources for startups. In addition to providing the capital that startup founders need to launch and scale, high net-worth and sophisticated investors can significantly contribute their insights and expertise to help these startups reach their goals.
Unfortunately, many investors looking for highly lucrative investment opportunities aren’t sure if they could consider themselves a high net worth investor, sophisticated investor, or both.
In this article, you learn the difference between a high net worth and a sophisticated investor, the qualifications you need to meet, and how to certify yourself as one.
What is a High Net Worth Investor?
High net worth investors are individuals who attest to having earned at least £100,000 in the previous year or hold net assets of at least £250,000. They also completed and signed a statement following the terms of COBS 4 Annex 2Rand whose signature indicates that they meet the requirements to be classified as such within twelve months, concluding on the day the communication is made.
Given the higher ability of these people to withstand losses, the government adjusted these criteria when the exemptions were implemented to offer an adequate level of consumer protection.
Perks and Benefits of Becoming a High Net-Worth Investor
High-net-worth investors (HNWIs) may include access to a dedicated wealth advisor, exclusive conferences and events, reduced costs for financial services, special access to services and advisors during evening and weekend hours, and even invitations to exclusive events and conferences.
One example is the annual conference held by DC Finance in London.
In addition to presenting their latest investment opportunities, the conference also features top-notch keynote speakers who discuss the latest investment trends and how these would affect investments made in various sectors. There are also panel discussions where the audience can have their questions answered by these experts.
Personalised services in investment management, estate planning, and tax planning are just a few of the services that some financial institutions might provide. Their wealth may also enable them to participate in initial public offerings (IPOs) and invest in startups with promising business models.
Requirements and Criteria
To become a high net worth investor, you confirm that you either have a yearly salary of more than £100,000 or possess net assets (such as stocks and bonds) greater than £250k.
Your asset value considered doesn’t include the following:
- Your home’s equity value,
- Any loans secured on your home or any real estate property,
- The face value and fund value of your insurance policies (fixed and variable)
- Any pensions or retirement benefits.
Download the HNWI form here.
What is a Sophisticated Investor?
A sophisticated investor is someone with the knowledge and expertise in finance and business to properly evaluate an investment opportunity’s overall potential. This could be done independently or with their representative or financial advisor.
Sophisticated investors also hold a certificate signed within the last 12 months by a person or organisation authorised to engage in specific regulated activities for the Financial Services and Markets Act of 2000 (FSMA 2000), confirming they are sufficiently knowledgeable to undertake that investment.
Perks and Benefits of Becoming a Sophisticated Investor
Like HNWIs, sophisticated investors are qualified for investment options that aren’t available to other classes of investors due to their net worth and higher income bracket, such as pre-IPO equities and, in some situations, hedge funds.
This is because large investment firms, hedge funds, and other institutional investors with unmatched resources, expertise, and decades of experience buy most pre-IPO shares.
Sophisticated investors can guide the company’s management, aid in decision-making, and smoothen the transition from a private company into a publicly-traded company. These investors’ advice and insights can be priceless, particularly for startups.
Requirements and Criteria
To become a sophisticated investor, you need to confirm that you are:
- a member of a business angel network or syndicate for at least the last six months
- invested in an unlisted company more than once in the previous two years
- working in the private equity industry or worked in the past two years in the private equity sector or the provision of finance for small and medium enterprises
- currently serving as a director of a business with a minimum annual turnover of £1 million or has served in the last two years
How do I Self-Certify?
As an individual angel under the FCA Financial Promotions Order, provided that you can certify yourself as a high-net-worth individual or a sophisticated investor, you are eligible to receive business plans and make investments through your own decision.
Download the self-certifications here.
Working with a team with a good understanding of the challenges facing high net worth and sophisticated individuals is essential for financial well-being.
With Trendscout, we have decades of knowledge and experience advising and catering to the wants and needs of high net worth and sophisticated investors when looking for potential investment opportunities.
If you would like more information, get in touch by scheduling a call today.