MPs criticise venture capital firms for 'unacceptable failure' to invest in women and ethnic minority-led firms

MPs criticise venture capital firms for 'unacceptable failure' to invest in women and ethnic minority-led firms
Dan Martin
Dan MartinDan Martin Content & Events

Posted: Fri 28th Jul 2023

An influential group of MPs has slammed venture capital firms for a low proportion of investment in companies outside London and the South East as well as businesses led by women and ethnic minorities.

The Treasury Committee called the diversity statistics "unacceptable" and said "rapid change" from the government and the investment industry was needed, with improvements in transparency and diversity data "urgently required".

The committee's report highlighted the often shared statistic that for every £1 of equity investment in the UK in 2021, all-female founder teams received 2p, all-male founder teams received 84p, and mixed-gender teams 14p.

A recent report by the British Business Bank showed that the share of venture capital finance to all-female founder businesses has seen no improvement in over a decade.

Other data highlighted by the Treasury Committee included figures from Extend Venture finding that in 2019, less than 2% of VC funding went to black and ethnic minority-led business, while UKBAA statistics highlight a lack of diversity among investors themselves. Only 15–18% of angel investors are women and around 11% are from ethnic minorities.

The committee said all this "holds the sector back" so it recommended that the provision of statistics relating to diversity in staffing and funding decisions should be a condition of receiving tacit taxpayer support in the form of the EIS and VCT tax reliefs.

It also said venture capital firms be required to comply with the industry standard Investing in Women Code or explain why they are not, and called on the government and British Business Bank to consult on the creation of venture capital funds targeted at women and ethnic minority founders.

When it comes to the regional spread of equity investment, the committee found that most is concentrated in London and the South East with 80% of funding given to businesses in the 'Golden Triangle' of London, Oxford and Cambridge. The UK capital alone receives almost half of all equity deals despite accounting for 19% of all small businesses.

Harriett Baldwin MP, chair of the Treasury Committee, said:

"The venture capital industry plays a vital role in supporting the growth of the nation’s small businesses, but statistics which show just two pence in every pound of investment goes to all-women led businesses demonstrate a shocking dereliction of duty given the level of government support for the industry through tax reliefs.

"In the twenty-first century, it shouldn't come as a surprise to investors that women and those from ethnic minority backgrounds can start successful businesses.

"Given public funds play a key role in the success of the UK's venture capital sector, more must be done. Firms must be compelled to reveal their diversity data when applying to these tax reliefs in an effort to increase transparency and drive change. Government incentives could also be tweaked to encourage more regional venture capital investment.

"As a committee, we will continue to keep a close eye on these important topics and will be investigating small business finance and sexism in the City in two new inquiries launched recently."

Despite previously calling on the government to make an announcement, the committee also criticised the lack of clarity by ministers on whether tax reliefs designed to stimulate investment in small businesses will be extended.

The enterprise investment scheme (EIS) and venture capital trusts (VCT) provide relief for income and capital gains tax. They are both due to expire in April 2025.

The Treasury Committee report said:

"The government has signalled an intention to extend the schemes but has not said when it will do so or for how long. This uncertainty is a risk to investment.

"We call on HM Treasury to detail and implement an extension urgently. This renewal of the EIS and VCT schemes is an opportunity to improve them to address current shortcomings. These chiefly comprise diversity, regional inequality and scaleup capital.

Relevant Enterprise Nation resources

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Join over 1,800 members in the Women in Business Network

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Videos: Watch the StartUp 2021 female entrepreneurship sessions

Dan Martin
Dan MartinDan Martin Content & Events
I'm a freelance journalist and event host who helps small businesses and the organisations that support them. I'm also Enterprise Nation's news reporter and Bristol Local Leader. I have 20 years of experience as a small business journalist having interviewed hundreds of entrepreneurs from famous names like Sir Richard Branson and Deborah Meaden to the founders behind brand new start-ups. I've worked for a range of leading small business publications and support groups, most recently as head of content at Enterprise Nation where I was responsible for the prolific output of content on the company's blog and social media. I now freelance for Enterprise Nation as the website's news reporter and as the host of the Small Business sessions podcast. I'm based in Bristol where I run and host regular events with the local small business community in my role as Enterprise Nation's Local Leader for Bristol. I also have strong connections with other major business organisations in the south west region. In total, I've hosted over 100 events including conferences with an audience of hundreds for international brands like Xero and Facebook and live web chats from inside 10 Downing Street. With my partner, I co-run Lifestyle District, a lifestyle blog focused on culture, art, theatre and photography.

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