Posted: Tue 11th Jul 2023
All-female founded businesses in the UK got only 2% of equity investment during 2022, a figure that has not improved since 2011.
The findings by the British Business Bank (BBB) said that although the share of equity deals to all-female founder teams rose from 5% in 2011 to 9% last year and 27% of deals went to teams with at least one female founder, the highest proportion ever, the overall share of finance to all-women led businesses has not increased over the last decade.
In a new report, Finding What Works: Pathways to Improve Diversity in Venture Capital Investment, BBB said there has been other progress in venture capital investment diversity including 13% of first-time equity deals going to all-female teams in 2022 and 10% to all-ethnic minority teams.
In addition, founding teams with at least one ethnic minority founder accounted for 42% of the investment value of first-time deals in 2022, up from 14% in 2013.
Despite these changes though, the Bank warned that diversity "remains extremely low" with women, ethnic minorities, and those from lower socio-economic backgrounds significantly less likely to receive funding compared to men, white people or those who studied at 'elite' universities.
How to improve venture capital investment diversity
The report identified three "pathways" for improving diversity in venture capital investment, based on the experiences of 40 VC investors and 124 venture-backed and ready businesses.
The first is promoting diversity at the top.
Research by the British Private Equity and Venture Capital Association (BVCA) found that only 3% of those in senior investment and non-investment roles are women from an ethnic minority background, with no senior Black women identified.
The BBB report said increasing diversity at the top can lead to better investment decisions, free from biases that may be typical for a single homogeneous group, as well as creating a culture of inclusion for diverse founding teams and venture capital staff.
The second pathway is fostering inclusion in the investment pipeline.
The (BVCA) survey found that 65% of venture capital firms do not approach their search for investment opportunities any differently when they seek to identify underrepresented founders.
BBB said focusing on ways to actively identify diverse founding teams will lead to a more diverse investment pipeline. Ideas include networking within office hours rather than traditional events, with some consideration for hours to accommodate family care. It also said attendance at accelerators is considered an efficient method for identifying high-potential businesses from underserved groups.
The third pathway is embracing transparency and accountability
The report highlighted data of venture capital firms showing that the industry needs to be 'loud and open' about the challenges, making themselves accountable for delivering positive, measurable change.
BBB said it can enacted by participating in industry-wide surveys to provide better quality data for analysis, ensuring clear communication of their investment strategies and commitments to diversity, and their ambitions to increase the proportion of deals with underserved entrepreneurs.
Louis Taylor, British Business Bank CEO, said:
"The journey of raising venture capital can be challenging – but for underserved entrepreneurs, the barriers can be far higher and this needs to change.
"Our report provides clear, actionable, and evidence-based pathways for UK funds to improve diversity in investment, which I hope will stimulate both discussion and action to improve outcomes for diverse entrepreneurs and the wider UK economy.
"Together, we can create the systemic change needed to unlock the full potential of talented UK entrepreneurs, wherever or whoever they are."