The Private Capital Series | Marshall Sterling INVESTMENT MANAGEMENT

Module 10.10 · Financial Promotions

The articles so far in this module have focused primarily on exemptions relevant to individual investors: high net worth individuals under Article 48, certified sophisticated investors under Article 50, and self-certified sophisticated investors under Article 50A. This article addresses a different question that founders frequently encounter as their capital raise develops: how does the financial promotion framework apply when communicating with professional and institutional participants such as angel investors, family offices, venture capital funds, and other intermediaries?

The starting point is important. There are no specific exemptions in the FPO for venture capital, private equity, angel investors, or family offices as named categories. The FPO does not carve out these participants by sector label. What it provides instead is a set of exemptions defined by the nature of the recipient, whether measured by their professional status, their financial resources, or their investment experience. VC funds, family offices, angel investors, and other professional participants access those exemptions by virtue of what they are, not by virtue of what the industry calls them.

Article 19: The Investment Professionals Exemption

Article 19 of the FPO provides that the financial promotion restriction does not apply to any communication made only to recipients whom the communicator believes on reasonable grounds to be investment professionals, or which may reasonably be regarded as directed only at such recipients.

Investment professionals for the purposes of Article 19 are defined in the legislation as authorised persons, exempt persons where the communication relates to a controlled activity in relation to which they are exempt, any other person whose ordinary activities involve them in carrying on the relevant controlled activity for the purposes of a business, persons who it is reasonable to expect will carry on such activity for the purposes of a business, governments, local authorities and international organisations, and directors, officers or employees of any of the above acting in that capacity.

The category of persons whose ordinary activities involve them in carrying on the relevant controlled activity for business purposes is the provision that brings in many professional and institutional market participants. A VC fund manager whose ordinary business involves investing in unlisted securities falls within this category. A regulated investment firm whose business includes acquiring interests in private companies falls within this category. A family office operating as a professional investment vehicle and carrying on investment activity in the ordinary course of its business may fall within this category depending on its structure and activities.

The key qualification is that the exemption applies only where the communicator believes on reasonable grounds that the recipient meets the definition. The existence of a professional label, a fund structure, or a track record of investment does not automatically establish this. You need a genuine basis for the belief, and that basis needs to relate to the specific definition rather than to a general impression of the recipient’s sophistication.

Targeting Conditions Under Article 19

Where a communication is directed at investment professionals rather than made directly to identified individuals, Article 19 provides that it is to be regarded as directed only at investment professionals if three conditions are met.

Meeting all three conditions means the communication is to be regarded as directed only at investment professionals. Meeting one or more but not all conditions is taken into account but does not automatically satisfy the test. This targeting framework is most relevant where you are distributing fundraising documents through a channel that may reach a mixed audience, such as a platform or network that includes both professional and non-professional participants.

Angel Investors: Which Exemptions Apply

Angel investors do not have a dedicated FPO exemption. Their regulatory categorisation depends on their individual circumstances.

Many angels will qualify under Article 50A as self-certified sophisticated investors. Membership of a business angel network or syndicate for at least six months is one of the four qualifying criteria under Article 50A, and having made more than one investment in an unlisted securities company in the previous two years is another. Angels who meet either of these criteria can self-certify. The angel’s own investment activity is directly contemplated by the Article 50A criteria.

Angels may also qualify under Article 48 where their income or net assets meet the relevant financial thresholds. Many active angels will qualify under both exemptions. Where both are available, either provides a valid basis for the communication.

Where an angel is part of a syndicate that operates as a structured investment vehicle with its own legal personality and sufficient assets, communications to the entity itself may fall within Article 49 (High Net Worth Companies) rather than the individual investor exemptions. The appropriate analysis depends on whether you are communicating with the entity or with the individual angels within it.

Venture Capital Funds: Which Exemptions Apply

Communications to a VC fund as an entity will typically be covered by Article 19 where the fund or its manager carries on investment activity in unlisted companies in the ordinary course of its business. A VC fund manager whose business is precisely the activity to which your investor outreach relates is a strong candidate for investment professional status under Article 19(5)(c).

Where the fund is a corporate entity with sufficient capital or net assets, Article 49 may also apply. Many VC funds are structured as limited partnerships. A limited partnership as such does not qualify as a body corporate under Article 49, but it may qualify as an unincorporated association with net assets of at least £5 million where it meets the threshold.

Where you are communicating with individual partners or employees of a VC fund rather than with the fund as an entity, those individuals need to be assessed separately. A partner at a VC firm whose ordinary activities involve making investments in unlisted companies may qualify as an investment professional under Article 19 in their capacity as a representative of the firm. Outside that capacity, as a private individual, they would need to qualify under Article 48 or Article 50A. Do not assume that professional involvement in VC automatically brings an individual within Article 19 for communications not made to them in their professional capacity.

Family Offices: Which Exemptions Apply

Family offices vary considerably in structure and regulatory status. Some are FCA-authorised. Some operate as exempt persons under the RAO. Others are unregulated investment vehicles managing assets for a single family without FCA authorisation.

An FCA-authorised family office qualifies as an investment professional under Article 19 by virtue of its authorised status. A family office that is an exempt person qualifies under Article 19 where the communication relates to a controlled activity in relation to which it is exempt. An unregulated family office investing in unlisted companies in the ordinary course of its business may qualify under Article 19(5)(c) if its ordinary activities involve carrying on the relevant controlled activity for business purposes.

Where the family office is a company or partnership with sufficient assets, Article 49 may apply regardless of its regulatory status. Where you are communicating with an individual family member or representative personally rather than with the office as an entity, the individual exemptions under Articles 48 and 50A become relevant.

The diversity of family office structures means there is no single answer to how the FPO applies to them. Each engagement requires a short analysis of the specific entity, its structure, its regulatory status, and whether you are communicating with the entity or with individuals within it. Marshall Sterling Investment Management recommends documenting this analysis for each family office approached as part of standard pre-raise compliance preparation.

Mixed Investor Bases

Most equity fundraising rounds involve a mix of investor types. A typical early-stage round might include individual angels, a small VC fund, a family office, and some high net worth individuals with no professional investment background. Each category requires its own exemption analysis. You cannot send a single investor communication to all of them on the assumption that a single exemption covers the entire list.

The practical approach is to segment your investor list by category before making any communications, identify the applicable exemption for each segment, ensure all conditions are met for each, and maintain a record of the basis on which each communication was made. This is more operationally demanding than treating all investors the same, but it is the only approach that reliably keeps every communication within the FPO framework. A well-prepared information memorandum or investor-ready business plan should be accompanied by a clear record of which exemption applies to each recipient category.