Changes to the sophisticated investor test will have widespread negative effects, writes Regional Angel Investor Network founder Sam Almaliki.
The federal government's proposed increase to the thresholds for sophisticated investors - from an annual income of $250,000 and net assets of $2.5 million to $450,000 in income and $4.5 million in assets - risks severely limiting access to investment opportunities in startups and innovation in Australia.
Australian founders, especially those who don't have access to the wealth of family and friends, rely most on private investors to back their innovations.
The Australian startup ecosystem will be significantly constrained without this early-stage catalyst funding.
This change will greatly impact the entire startup ecosystem and affects the broader Australian economy downstream.
By substantially limiting the pool of potential investors in Australia, we are effectively slowing down the rate and magnitude of innovation in Australia.
This will hurt future job and wealth creation and Australia's place in the global economy.
Specifically, raising the thresholds will further exclude knowledgeable individuals, exacerbate gender and geographic disparity in investing, and concentrate investment power in a smaller, wealthier population segment.
Our brightest inventors and best inventions have often only come about because of the backing of early-stage investors - everyday Australians who have the capacity and willingness to be angel investors.
By substantially limiting the pool of potential investors in Australia, we are effectively slowing down the rate and magnitude of innovation in Australia.- Sam Almaliki, founder, Regional Angel Investor Network
Instead of creating further barriers to protect investors, we suggest it would be better to implement an education-based certification overseen by the Australian Securities and Investments Commission (ASIC), enabling experts to invest in Australian startups.
This certificate would be designed for individuals with experience and knowledge in the startup sector.
The certification process should include comprehensive educational modules covering various aspects of startup investments, risks, regulatory frameworks, and ethical considerations.
Upon successful completion, participants would be granted the status to invest in innovative Australian startups, promoting a more inclusive and informed investment environment.
This approach aims to balance the need for investor protection with fostering a diverse and dynamic startup ecosystem, essential for Australia's economic growth and technological advancement.
This is consistent with the Albanese government's focus on creating opportunities for wealth creation, the kind that supports improved flow and distribution of capital and job growth and enables greater diversification and dynamism across the economy.
Sam Almaliki is the founder and facilitator of the Regional Angel Investor Network, which has launched a petition urging the Australian government to reconsider proposed changes to the sophisticated investor test to allow innovation to flourish in Australia.
- ACM is a proud partner of the Regional Angel Investor Network.