MPs challenge venture capital firms on female and minority-led investment rates

The UK’s treasury committee has heavily criticised venture capital (VC) firms after its new report found that all-female founders received just 2% of all venture capital funding in 2021, while less than 2% went to black and ethnic minority-led businesses.

In the report, the cross-party committee of MPs criticises the poor diversity statistics and calls for rapid change from both the government and the industry – with improvements in transparency and diversity data cited as urgent requirements.

What do diverse founders say?

As a black female founder in the UK, Courtney Glymph, founder and managing director at YourStoryPR, says the report’s findings are disheartening, but sadly unsurprising.

“Women and BAME entrepreneurs have long been underrepresented in the startup ecosystem despite their unparalleled support and commitment to its growth,” says Glymph.

“The lack of access to capital is a major barrier for these groups getting funding. Traditional venture capitalists are predominantly male, white and elite, meaning that there is a lack of diversity in the investors’ decision-making processes. If everyone around the table looks, acts and sounds the same, then it is unsurprising that their investments go towards mostly white male founders.”

“However, as this report points out, there is an increasing recognition of the need for change and greater diversity within the UK startup sectors – and we are beginning to see more initiatives that provide access to capital, such as dedicated accelerator programmes and funds targeting underrepresented groups. Though in their infancy, this is a good start. 

“What’s more, we must continue to foster an inclusive culture that actively encourages diversity across the board. We can’t expect to see an increase in funding for diverse founders if we don’t actively start with the pipeline problem,” adds Glymph.

It’s a boys’ club

Jessica Alderson is cofounder and CEO of dating app SoSyncd. She believes a big part of the problem is gender bias, but also the gaps in networks.

“Female founders struggle to secure meetings with investors because most funds only accept meetings via personal introductions,” says Alderson. 

“During our fundraise, I spent a significant amount of time reaching out to funds directly, but I didn’t receive replies even from funds that were specifically for underestimated founders. But I could fairly easily secure a meeting with the same funds if I was introduced by a mutual contact. 

“There’s an irony in that underestimated founders don’t have the same investor networks because of the existing biases – fewer women get funded and, as a result, are less likely to build strong networks in the investment space. It’s a self-perpetuating cycle.”

Alderson acknowledges that many people think that there’s progress being made in terms of equality in the VC industry because there is now more noise than before, but notes the data – such as that published in the treasury committee’s report – shows that the funding gap still exists and is just as wide as ever. 

“I think that one of the best ways to tackle this problem is regulation around fund transparency and diversity metrics,” she adds. “If each fund had to disclose the diversity of its portfolio, then it would be easier to create more accountability in the industry.”

Too much capital in the capital?

In the report, the committee also flagged that VC investment is unacceptably concentrated in London and the South East.

It claims 80% of such investment flows to the “Golden Triangle” of London, Oxford and Cambridge, with London alone receiving almost half of all equity deals despite accounting for just 19% of all small businesses. 

Relevant content:

The truth hurts: how lack of female funding alters the startup landscape
Barclays launches tech start-up support programme for Black founders

Kirstie Pickering - business journalist

Kirstie is a freelance journalist writing in the tech, startup and business spaces for publications including Sifted, TNW, UKTN, The Business Magazine and Maddyness UK. She also works closely with agencies such as CEW Communications to develop content for their startup and scaleup clients.