Conflicts of interest in angel investing.

Picture a deal email. A syndicate lead you respect writes up a seed round in warm, confident prose, sets a closing date, and invites you in alongside them. What the email doesn't say is that the lead is taking a 2% fee on everything raised, holds advisory shares in the company already, and sits on the board of a rival in the same niche. None of that is necessarily improper. But you'd read the round rather differently if you knew.

That gap - between what's driving a recommendation and what the recipient can see - is the whole subject. Conflicts of interest are not exotic in angel investing; they're structural. The market runs on small, overlapping circles of people who lead rounds, advise companies, sit on boards, and write cheques, often all in the same week. The question is never whether a conflict exists. It's whether it's on the table.

A conflict is a situation, not an accusation. What turns it toxic is the silence around it.

What actually counts as a conflict of interest?

A conflict of interest arises whenever a person involved in a decision has a private interest that could reasonably be expected to influence how they act - and where that interest doesn't line up with the people relying on them. In an angel context, that "person" might be a lead investor, a director, an adviser, or you.

Two distinctions are worth holding onto. First, a conflict is a situation, not a moral failing. Having one doesn't mean you've done anything wrong; acting on it without disclosure does. Second, conflicts come in two flavours - actual, where your interest and your duty are already in tension, and potential, where they might collide later. Good practice treats both the same way: surface them early, before anyone's money is at stake.

Where conflicts hide in angel deals

Most of the conflicts an angel meets fall into a handful of recognisable shapes. None is rare.

The syndicate lead who's paid to fill the round

This is the big one. When you back a deal through a syndicate, the lead is usually paid - sometimes an upfront fee, often carry (a slice of the eventual profit, the same word this newsletter is named for). That's a perfectly legitimate way to compensate someone for sourcing and structuring deals. But it creates a tension: a lead earns more by closing rounds than by passing on weak ones, and those aren't always the same instinct. A lead investing their own capital on identical terms is partly bonded against that tension. One who isn't, isn't. The honest version of this discloses the economics up front - how the lead is paid, how much, and whether their money is in the round beside yours.

The company you already own a piece of

If you hold shares in one logistics start-up and you're shown another in the same lane, your judgement isn't neutral, and your access to information cuts both ways. Sit on the board of one and you may be handling commercially sensitive material that a rival would value. Angels with deep sector concentration run into this constantly. It doesn't bar you from investing, but it's the kind of thing a founder and your co-investors deserve to hear before, not after.

Advisory shares and the two-hats problem

Plenty of angels take an advisory role and receive shares or options for it. Useful for the company, fine in principle - but it means you're now wearing two hats. As an adviser you may push for decisions that suit your own equity or fee; as a shareholder you vote on them. Where those hats pull in different directions, the adviser's interest can quietly override the shareholder's judgement. The cleaner setups separate the roles, document the advisory terms, and keep you out of votes where your advisory stake is the thing being decided.

What the rules actually require

Where you sit changes what's expected of you. As a purely passive shareholder, your formal obligations are light. The moment you take a board seat, that changes sharply.

UK company directors carry statutory duties under the Companies Act 2006. Two are directly on point: a duty to avoid situations in which a personal interest conflicts - or possibly may conflict - with the company's interests, and a duty to declare any interest in a proposed transaction or arrangement with the company. A conflict can be authorised - by the board or shareholders, depending on the articles - but the declaration has to come first. Quietly voting through a deal you stand to gain from is exactly what these provisions exist to stop. The statutory text sits in the general duties of directors under Part 10 of the Act.

There's a second layer worth flagging, because angels routinely miss the overlap. The SEIS and EIS schemes have their own related-party and connection rules, and they bite on the same relationships that create conflicts. Relief can be restricted or lost where an investor is "connected" to the company - through certain employment, a holding above a set proportion of the shares, or some director relationships. These are eligibility conditions rather than conflict-of-interest law, but they cover much the same ground, and they're easy to trip on without noticing. The precise connection tests have technical edges and have been adjusted over time, so read the current conditions straight from HMRC's venture capital schemes guidance before relying on relief, rather than taking a figure from a deck or an article.

And if your activity tips into recommending deals to others - a list, a network, a syndicate you run - you're into financial promotion territory as well, which carries its own duties. We've written separately on the FCA financial promotion rules; the short version is that the person doing the promoting carries the responsibility, and an undisclosed conflict makes a bad situation worse.

How to handle a conflict cleanly

The instinct to manage a conflict by saying nothing is the wrong one, and not only ethically - it's the version most likely to blow up later. The workable approach is duller and far safer.

Disclose early, and do it in writing. A short note that names the interest - "I hold advisory shares", "I'm paid carry on this round", "I'm invested in a competitor" - does almost all the work, because it hands the other parties the information they need to judge for themselves. Where the conflict is sharp, step back from the decision: on a board, follow the procedure for declaring an interest and recusing yourself from the relevant vote. The point isn't to make the conflict disappear. It's to make it visible, so nobody can later say they were misled.

From the receiving end, the same logic runs in reverse. When you're shown a deal, it's reasonable to ask how the person recommending it is paid, what else they hold, and whether their own capital is in alongside yours. A confident, well-run lead will answer without flinching. Hesitation is itself a piece of information.

None of this is a recommendation to do or avoid any particular deal. It's a description of how conflicts work and how the better operators handle them. The rules - company law, the SEIS/EIS connection tests, the financial promotion regime - turn on your own circumstances and they change, so this piece is general information, not financial or legal advice. Take FCA-regulated or legal advice on your specific position before you act.

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