Start-up fundraising: Rules on financial promotions

As a founder of a start-up company, one important consideration for growing and expanding the business will be whether to seek help from an investor, such as by offering shares in exchange for a cash payment into the company. It is important to be aware of the rules that are in place which may restrict your ability to seek out such investment, or in other words to make a ‘financial promotion’.

Under section 21 of the Financial Services and Markets Act 2000 (“FSMA”) an individual or a company "must not, in the course of business, communicate an invitation or inducement to engage in investment activity".

The purpose of this legislation is primarily to protect potential investors, and to ensure that they can make a sufficiently informed decision about whether to proceed with an investment. Given the complexity of the rules, it can be easy to fall foul of them, particularly as over the last few years, the Financial Conduct Authority (“FCA”) has introduced a raft of new legislation to keep up with the ever-evolving risks posed by online communications, highlighting its concern specifically around the use of social media. In 2024 it published guidance to address the rise of social media personalities who use their platform to influence other users to use, purchase or invest in financial products – also known as “finfluencers”. According to the FCA, in June 2025 it led a “coordinated international enforcement effort involving nine regulators across six countries,” following which criminal proceedings against certain users were instigated, with some now facing potential imprisonment.

Breach of these rules can constitute both a civil and criminal offence and any agreement made in breach of the rules is liable to be deemed non-enforceable. It is therefore very important to be aware from the outset of what you and your company can (and cannot) do.

What is a financial promotion?

The term ‘financial promotions’ encompasses any communication, engagement, offering or invitation to others to subscribe for stocks or shares in a company. This can include written, electronic and oral communications and it is important to be aware that both formal investment offerings and also any informal communications, such as a brief conversation or a post on social media, could be considered a breach of the rules. 

The invitation must be made in the ordinary course of business to fall within the prohibition. This is intended to preclude any communications made which are genuine non-business communications. Examples of such communication given by the FCA include friends talking in a pub, letters between family members, or e-mails sent by individuals using an internet chatroom.

Legal rules around financial promotion

As mentioned above, the general rule is that a person “must not, in the course of business, communicate an invitation or inducement to engage in investment activity”.

Each of the following key elements must be satisfied for there to be a financial promotion:

• is there an invitation or inducement?
• has it been communicated?
• is it made during the course of business?
• is the purpose or effect of the communication that a person will engage in investment activity or claims management activity?

This prohibition, however, is subject to certain exclusions and exemptions, as set out below.

When do financial promotion rules not apply?

The rules on financial promotions will not apply in the following circumstances:

• if the person seeking investment has been given permission by the FCA or the Prudential Regulation Authority (“PRA”) and is therefore deemed to be an authorised person under FSMA. Examples of persons who may have successfully obtained such permission include banks and investment funds;
• if an authorised person has approved the content of the communication. In 2023, new FSMA legislation established the “regulatory gateway” through which an authorised firm must pass before they are permitted to approve the financial promotions of unauthorised firms; or
• if an exemption applies.

Obviously, founders and their companies are free to engage with authorised persons and firms to prepare investment prospectuses. However, this can be an expensive and time-consuming process and so start-up companies may wish to rely on one of the exemptions when seeking investment, especially for early-stage funding rounds.

What are the exemptions?    

As the legislation is in place to protect those who may be at risk of losing their investment, the exemptions are largely focussed on the experience and sophistication of the recipient of the communication. 

Any promotion made to an individual or company who considers themselves to be sufficiently sophisticated to understand the risks involved in investing in a company are likely to be exempt from the rules. There are a number of exemptions available to assist in these situations (subject to certain criteria being met), including (but not limited to) with investors who are:

1. Self-certified sophisticated investors: to fall within this exemption, the investor must have signed a statement in the previous 12 months to confirm that they are a sophisticated investor and satisfy the requirements set out in the legislation (for example, that they are a director of a company with an annual turnover of at least £1 million, or that they have made at least two investments in an unlisted company in the previous two years). The statement must also confirm that the investor understands the risks associated with receiving such financial promotion and making any investment.
2. Investment professionals: the prohibition will not apply if the person seeking the investment believes, on reasonable grounds, that the recipient of the communication is an investment professional, or the communication must be reasonably regarded as directed only at such recipients. This will include, for example, banks and insurance companies.
3. High net-worth individuals: to fall within this exemption, the investor must be self-certified as reaching certain criteria, which means they are deemed to be a high-net worth individual. This will include an individual who had, during the financial year immediately preceding the date of the certificate, an annual income of £100,000 or more, or held, throughout the same year, net assets of £250,000 or more (excluding their primary residence).

In addition, the rules may not apply to any communication made in connection with the sale of a company where the transaction consists of or includes 50% or more of the voting shares of that company, and any communication made for the purposes of an ‘employee share scheme’.

There are also distinctions made between ‘solicited’ and ‘non-solicited’ communications, as well as ‘real time’ and ‘non-real time’ communications, depending on who initiated the promotion, and when it was made. A ‘solicited’ communication is one which is initiated or requested by the recipient, and a ‘real-time’ communication is one which involves a degree of immediate interaction (such as a telephone call.) A ‘non-solicited real-time’ communication, on the other hand, is one where the recipient of the communication has not requested it and as such it is seen as more risky to the recipient (this will include, for example, where someone seeking an investment makes a non-solicited visit to someone they wish to receive an investment from.) There are therefore fewer exemptions available for such communication. 

The exemptions mentioned above are some of the most commonly used, however there are a number of others which may apply. It is important to note, however, that there are often strict conditions and stipulations which must be complied with in order to rely on an exemption, such as that warnings about the risks of investing must be given to the recipient of the information when the communication is made to them.

Practical steps for founders seeking investment

Given the strict penalties imposed by the FCA, it is advisable to err on the side of caution when considering whether (and how) to try to seek external investment into your business. If you are at all unsure of the rules, seek advice from a professional in the first instance, or consult the various guidance notes published by the FCA.

Financial promotions FAQs

Can casual conversations count as financial promotions? 

Yes, a casual conversation is capable of being deemed a financial promotion, if it involves an invitation or inducement to make an investment and that invitation is made during the course of business. However, there may be exemptions available, so this will be dependent on the overall context and content of the conversation.

Can I promote my crowdfunding campaign on social media?

As highlighted above, the use of social media to promote investment opportunities has been the subject of increased scrutiny by the FCA over the past few years, resulting in fresh guidance and legislation which has made it clear that the financial promotion rules set out above apply to all forms of communication, including social media. It must also be noted that each individual post (whether this be a reel, a meme, a story etc.) made by a user must comply with the rules. Therefore, if the post falls within the scope of the rules, it will be prohibited unless an exemption applies or it is approved or made by an authorised person. 

Do the rules apply to foreign investors?

Yes – it is important to note that the rules around financial promotions apply to any communication that is “capable of having an effect in the UK.” This applies to communications originating outside of UK if they are accessible to UK consumers, even if they are not specifically targeted at them.

Legal advice for start-up founders

The rules surrounding FSMA and the financial promotions regime are complex and given that anyone in breach of them faces possible criminal sanctions, it is imperative that anyone thinking about seeking out potential investors is aware that the rules exist and that care needs to be taken not to breach them.

Please contact our corporate team for further advice.