In 2021, businesses founded by women received only two percent of venture capital funding, while black and ethnic minority-led businesses received less than two percent. These statistics, deemed ‘unacceptable’ by the cross-party Treasury Committee of MPs, have prompted a call for rapid change from both the government and the industry.
Venture capital, a common form of investment in early-stage companies, particularly in the tech sector, involves investing in a business in exchange for a share of its ownership. The committee emphasized the significance of globally competitive tax reliefs that aim to promote investment in UK firms.
While venture capital is a risky but crucial investment for companies with high growth potential, the Treasury has not provided clarity on extending venture capital tax reliefs with expiry dates despite previous calls from the committee. To provide more certainty for founders and investors, the government has been urged to extend these schemes as soon as possible.
The committee has recommended that the Treasury make it a requirement for venture capital firms to collect and publish diversity statistics of their investments in order to be eligible for tax relief. Additionally, the committee found that venture capital investment is disproportionately concentrated in the London and South East regions, with 80 percent of VC investment going to the ‘Golden Triangle’ of London, Oxford, and Cambridge. London alone receives almost half of all equity deals despite comprising only 19 percent of small businesses.
The maximum age limits of seven and ten years written into the tax reliefs currently hinder economic growth and innovation for companies outside of London and South East. Therefore, the committee proposes extending these age limits.
The MPs also urge all venture capital firms to sign up to the Women in Finance Charter and Investing in Women Code, which require the publication of gender and diversity statistics. Compliance should be mandatory for receiving tax relief support, and the government and British Business Bank should consider creating a fund specifically aimed at promoting gender diversity in venture capital allocation.
In response to the report, Harriett Baldwin MP, chair of the Treasury Committee, emphasized the need for greater diversity in venture capital investments and transparency in reporting diversity data. She also called for government incentives to encourage more regional venture capital investment.
Investing in diversity
Suid Adeyanju, CEO of cyber security intelligence partner RiverSafe, highlighted the lack of diversity at the ownership and C-Suite levels as a major issue in perpetuating the lack of diversity in industries like tech. This absence of role models from diverse backgrounds can hinder the confidence of underrepresented groups, posing a significant hurdle in their career progression.
Sheila Flavell CBE, COO of FDM Group and president of techUK, acknowledged the lack of funding for founders from diverse backgrounds and stressed the importance of transparency in reporting diversity data to address these funding issues. She further emphasized that investing in diversity opens doors to diverse talent pools, driving economic success and helping diverse businesses thrive.
