Venture capital has a diversity problem, MPs told

Parliament’s influential Treasury committee, which is investigating the lack of gender and ethnic diversity in the UK’s VC industry, said it is probing why female business founders receive less than five per cent of all venture capital investment, with the figure sliding to under two percent for black entrepreneurs.

“Naturally, there’s a mirrortocracy. People will invest in people who look like them and they understand that shared experience,” said Ladi Greenstreet, chief executive of Diversity VC. “One of the key things is the homogeneous nature of the venture capital industry. If we have predominantly men on the investment committee, then naturally, there is a set of human biases that come into account.”

Alexandra Daly, co-chair of the Council for Investing in Female Entrepreneurs, told MPs that women launch businesses with 53% less capital on average than men and they are “less aware of funding options available and less likely to take on debt”.

She said: “We need to dispel the myth that women aren’t interested in business. They’re extremely interested in business, they just need the right tools in their box to be able to get that capital in.”

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Daly claimed that one key issue is the opaqueness of the alternative markets industry.

“It’s very difficult for an entrepreneur, let alone a female entrepreneur, to find out how to access it. We’re trying to lift this veil.”

The Treasury committee cited research from the British Business Bank that found all-female founder businesses received 2p of every pound of equity investment in 2021, while all-male founder teams received 84p. Businesses with mixed-gender founders received 14p.

Women account for roughly 20% of all VC investment roles, according to Diversity VC, while 83% of investment committees have no women members.

Diversity VC’s Greenstreet said: “The government should be taking a lead and making sure that as a limited partner in many funds through British Patient Capital, and as an allocator of capital through the Enterprise Investment Scheme and Seed Enterprise Investment Scheme, there should be inclusivity embedded in finance.”

The political focus on the industry comes amid mounting pressure to improve diversity within both VC and private equity.

In August 2022, analysis of more than 1,000 PE and VC firms across continental Europe revealed that only 20% of investment professionals are women, with the figure falling to 10% at the senior level.

At a senior level, all countries bar Ireland had representation at or below 15%, according to Level20, a not-for-profit organisation dedicated to improving diversity in private equity.

This article was published by Financial News sister title Private Equity News

To contact the author of this story with feedback or news, email Sebastian McCarthy