Male-owned venture capital funds have received 10 times more LP capital than female-owned funds in the last six years in the UK. It’s a shocking statistic, but unfortunately not an entirely surprising one.
While more women are entering the sector, the report estimated that currently only 21% of senior roles within venture capital firms are held by women. It’s easy to see how this gender disparity at the fund level can set off a chain reaction, with female-led startups also less likely to receive funding.
In fact, there has been no improvement in the share of venture capital investment to female founder teams over the last decade, according to a report from the British Business Bank published in July.
An estimated 27% of deals went to teams with at least one female founder in 2022, with all-female teams accounting for only 9% of deals. That meant they received a mere 2% of the total amount of equity investment that year, reflecting no improvement since 2011.
It’s clear that if we are to improve female entrepreneurs’ access to finance in the venture capital sector, we must look first to the VC funds themselves.
Taking action
The Investing in Women Code, an initiative recommended by the government into how best to boost female entrepreneurship, is a key first step. British Patient Capital was one of the first LPs to sign the code, which sets out commitments to support women through access to the tools, resources and finance they need to achieve their goals.
While I’m particularly proud of the 200+ firms that have already signed the Code – which includes 170 VC firms – there is still more to do to drive action to bring about change. We share our research and analysis to encourage funds to adopt diversity and inclusion approaches and track the effectiveness of adoption and action.
It’s clear that there are structural factors at play holding back female entrepreneurs when they are looking for finance. This is reflective of the wider finance industry, as highlighted by a recent FCA consultation which identified that there is more to be done to improve diversity and inclusion in the financial sector.
What isn’t always so clear is how VC funds can take action to break down these barriers for female entrepreneurs once and for all.
A three-pronged approach
The Finding What Works report published by the British Business Bank, of which we are a commercial subsidiary, calls for three clear, actionable, and evidence-based pathways for UK funds to improve diversity in venture capital investment. Each of these can guide the next steps to make meaningful change.
The first pathway for VCs is to recognise the link between the lack of diversity in their portfolio and within the senior ranks in the firm itself. Increasing diversity at the top is going to enable firms to make better investment decisions, free from biases that may be typical of a single homogenous group. This applies to senior decision-makers on investment committees as well as those involved in the identification of potential propositions. Female investors at this level are more likely to connect with relevant communities to attract and identify female entrepreneurs.
Admittedly, we are seeing the gender balance beginning to improve at the junior levels within VC firms. This is promising, but it’s going to be a while until this talent climbs up the ranks. It’s something that VC funds must keep front of mind and intentionally build into senior teams.
The second pathway is placing greater emphasis on increasing the pipeline of investment opportunities from underserved founders. Some 65% of VC firms admit they do not approach their search for investment opportunities any differently when they seek to identify underrepresented founders. If the female-led pitch decks aren’t coming to you, it’s important to understand how you can go to them. One immediate change to make is prioritising networking events happening during office hours to accommodate family care time that typically happens in the evening. Using accelerators as a referral mechanism to identify diverse entrepreneurs is also a proven and effective method.
The final pathway is to subscribe to the notion that what gets measured gets done. Accountability for measuring and delivering progress is essential, supported by a strong emphasis on being transparent with that information. The industry needs to be ‘loud and open’ about the challenges it’s facing and any measurable change. Participating in industry-wide surveys to provide better quality data for analysis demonstrates a genuine commitment to change.
A win-win opportunity for VCs and female founders
Each of these pathways provides actionable guidance for VC funds looking to ensure capital finds its way to female founders. The key message here though is that VC firms should strive to assess what works for them and choose a tailored approach to see the most success. It should be something that firms can commit to and consistently action over a sustained period.
In doing so, they will not only effectively boost capital to underserved female founders, but also boost their own performance and returns. It’s a win-win all around and as a sector, this should be what we should be aiming for.
Christine Hockley is managing director of funds at British Patient Capital.
The post VC funds must be proactive to boost capital for underserved female founders appeared first on UKTN.