MPs slam lack of diversity in venture capital market as just two per cent of funding goes to all-female founded businesses
MPs have slammed the lack of diversity in the venture capital industry, demanding that the government take greater action to improve representation of women and ethnic minorities in the sector.
In a new report, the influential Treasury select committee highlighted that just two per cent of venture capital funding in 2021 went to businesses with all-female founders. Less than two per cent went to black and ethnic minority-led businesses.
Venture capital is a form of financing that investors provide to early-stage companies in the belief they have long-term growth potential.
In the UK, the government supports the venture capital market through tax-advantaged schemes and programmes delivered through the British Business Bank.
The committee highlighted that as the government plays an important role in supporting the sector, it could also help to drive change.
Chair of the committee Harriet Baldwin said: “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,” she continued.
It called for the government to take greater steps to ensure the publication of diversity data by making its publication a condition of applying for tax reliefs.
“Firms must be compelled to reveal their diversity data when applying to these tax reliefs in an effort to increase transparency and drive change,” Baldwin said.
The committee also argued that venture capital firms should be required to comply with the Investing in Women Code and that the government should consult on creating venture capital funds targeted at women and ethnic minority founders.
Michael Moore, chief executive of venture capital at the British Venture Capital and Private Equity Association (BVCA), said the UK should be “proud” of its venture capital sector but said the committee was “right to highlight diversity as a major challenge”.
The committee also noted that many businesses seek investment overseas due to a “dearth in UK domestic capital”.
It welcomed the government’s plans to consolidate pension funds, suggesting they are potentially an “untapped source” for developing deeper capital markets in the UK.
Under the new ‘Mansion House Compact‘, the UK’s top pension funds and insurance firms have agreed to divert a minimum of five per cent of defined contribution cash into unlisted companies by 2030.
Pension funds currently allocate a tiny chunk of their cash to private firms and have instead poured into FTSE 100 firms and safer bond holdings.