- Britain’s venture capital industry is failing to invest in companies started by women and minority ethnic entrepreneurs, MPs have said.
- The Treasury committee finds that most venture capital funding goes to companies in south-east England.
- Only 2% of all venture capital funding in 2022 went to female-led businesses.
The venture capital industry in the UK has faced criticism from MPs over its lack of investment in businesses outside London and south-east England. In a report, the Treasury Committee has criticized the venture capital industry for its “unacceptable failure” to invest in businesses run by women and ethnic minorities, saying it demonstrates a “shocking dereliction of duty.”
Venture capital is crucial in supporting early-stage companies with high growth potential. However, businesses founded exclusively by women were revealed to have received just 2% of all venture capital funding in 2022. Meanwhile, even less investment went to companies led by black or other minority ethnic executives.
Further, 80% of venture capital investment goes to the”Golden Triangle” of London, Oxford, and Cambridge. London receives almost half of all equity deals, despite accounting for just 19% of small businesses.
Citing the British Business Bank, the report stated:
“For every £1 of equity investment in the UK in 2021, all-female founder teams received 2%, all-male founder teams received 84%, and mixed-gender teams 14%. This is lower than the 4% received by all-female teams in 2020, reflecting yearly volatility.”
Nonetheless, Venture capital supports start-ups and other businesses with the potential for rapid growth, typically in exchange for a company share. It is a vital funding source for tech companies, which often need significant investment in research before they start making a profit. Additionally, the venture capital sector receives support from the Government through tax reliefs, which are aimed at encouraging investment in the UK.
The cross-party Treasury committee of MPs has criticized the unfair allocation of funding revealed by the diversity statistics and is calling on the industry and Government to urgently improve the figures and transparency.
MPs Call On The Government To Extend Tax Reliefs
On the other hand, various vital champions in the industry have given out their remarks concerning the matter. Some of them include Harriett Baldwin, chair of the Treasury Committee. Baldwin stated:
“In the 21st century, it shouldn’t surprise investors that women and those from ethnic minority backgrounds can start successful businesses. Given that public funds play a key role in the success of the UK’s venture capital sector, more must be done.”
She also called on the Government to force firms applying for tax reliefs to “reveal their diversity data.” Government incentives could also be tweaked to encourage more regional venture capital investment.
Sue Daley from TechUK, has noted:
“It is disheartening to see that women-led businesses are still facing discrimination. Women-led businesses must be appropriately funded so they can grow and help us address our day-to-day and long-term struggles.”
However, the MPs have called on the Government to extend tax reliefs currently limited to companies under seven or ten years old. The move is holding back economic growth and innovation, the MPs warned.
The Treasury has further asserted that they are committed to ensuring everyone in the UK has equal opportunities to start and run a business “regardless of gender, race or region.”
All venture capital firms are encouraged to adopt the Women in Finance Charter and the Investing in Women Code, ensuring transparency in data on gender and diversity within companies.
