UK report spotlights the huge investment gap facing diverse founders

Natasha Lomas
·8-min read

New research looking into how U.K. VC has been invested over the past decade according to race, gender and educational background makes for grim reading -- with all-ethnic teams and female entrepreneurs receiving just a fraction of available funding versus all-white teams and male founders.

The finding of baked-in bias holds true across all funding stages, per the findings.

The report, by the not-for-profit community interest company Extend Ventures, looked at how VC has been invested in the U.K. between 2009 and 2019 -- providing data on 3,784 entrepreneurs who started 2,002 companies over this period. It found that all-ethnic teams received an average of just 1.7% of the venture capital investments made at seed, early and late-stage over this decade.

The U.K.’s Black and multi-ethnic communities, meanwhile, now comprise 14% of the U.K. population.

"While all ethnic entrepreneurs are underfunded, those who are Black experience the poorest outcomes of all," the report notes, finding just 38 Black entrepreneurs received VC funding over this decade. "Alongside their teams, they received just 0.24% of the total sum invested," it adds.

Extend Ventures used machine learning and computer vision technology as a tool to understand demographic factors -- "including age, perceived gender, ethnicity and educational background of founding members" -- relying on a perception of ethnicity or gender to categorise founders for the research, based on analysis of publicly available images of entrepreneurs.

"Despite ethnicity usually being a self-determined categorisation, we believe this is justified because the data we collect is subsequently anonymised and is being used to improve access to capital," they note, adding: "Ethnic or gender prejudice is dependent on the perception of the person holding the purse strings to funds."

On gender the research underlines the scale of the challenge U.K. female entrepreneurs face in accessing VC funding versus male counterparts.

The report found that a large majority (68.33%) of the capital raised across the seed, early and late VC funding stages went to all-male teams; 28.80% to mixed gender teams; and just 2.87% to all-female teams, with female teams also raising lower sums of money than their male counterparts at each funding stage.

The picture is starkest for Black female entrepreneurs in the U.K. who were found to experience the poorest outcomes.

"A total of 10 female entrepreneurs of Black appearance received venture capital investment (0.02% of the total amount invested) across the 10-year period, with none so far receiving late-stage funding," the report notes.

It also found just one early-stage (Series A or B) venture capital investment recorded for a Black female, compared to 194 early-stage investments in white female entrepreneurs.

Extend Ventures' research also looked at educational background -- spotlighting the role of elite universities in the distribution of venture capital in the country.

Here the report found that 42.72% of U.K. VC invested at seed stage during the period was invested in founding teams with at least one member from an elite educational background (narrowly defined to mean Oxford, Cambridge, Harvard, Stanford and their respective business schools).

In the U.K., the debate about how to widen access for underrepresented students to the country's top two universities has been raging for years -- with progress toward diversification of the Oxbridge student body still hard to see.

The report illustrates one impact of this long-standing inequality around access to the elite education -- as it shows it carries through to decreased opportunity, post-university, for accessing VC funding.

The implications for social justice and social mobility are clear.

"The data we have shown today is stark and makes for uncomfortable reading," Extend Ventures' co-founder and technology entrepreneur Tom Adeyoola told TechCrunch. "Only 0.24% of venture funding over the last 10 years going to (38) Black founders, 0.02% going to Black female founders. In addition 43% of all seed funding went to teams with at least one team member who went to an elite university."

The report makes a series of recommendations -- including calling for all venture funds to make data on their investments publicly available so they can be tracked to enable inclusive ongoing reporting on the industry’s performance on diversity.

It also suggests VC firms need to do more work to understand and establish what it describes as "the possible resilience criteria independent of race, gender and education that are indicators of success" -- to use in their filtering processes going forward, as a way to guard against biased decisions.

Another recommendation is for the U.K. government to create an "Investing in Ethnic Founders Code", mirroring the existing Investing in Women Code.

The report also calls for government to support inclusion via the creation of a Diverse Co-Investment Fund -- which it suggests should be set at £1.8 billion (14% of the $13.2 billion annual U.K. VC total) -- as a strategy to de-risk and improve the deployment of equity investment into Black, Asian and ethnic-led venture capital funds.

We've reached out to the Treasury for comment on the recommendations.

"There is no longer any excuse for transparency and action to overcome clear biases," said Adeyoola. "You can't improve what you don't measure and for all the talk around the Rose Review [U.K. Treasury-commissioned report into female entrepreneurship] and Black Lives Matter, action needs to translate into real investment into diverse founders to ensure that as a nation we are making the most of the diverse talent and resources we have."

"The British Business Bank report released last week has already shown that there is no lack of ambition -- just, as we now lay bare, a clear lack of financial capital," he added.

Ada Ventures partner Check Warner, who is also co-founder and CEO of Diversity VC, which supported the report, told us: "It’s extremely overdue getting this data, just like it was overdue getting data on the gender split of management teams in pipelines of VC funds and who received investment, which was a report that Diversity VC co-published with the British Business bank just last year, February 2019.

"The stats are extremely sobering. I would urge any Venture Capital fund who wants to meaningfully change these stats to explore the Diversity VC Standard in order to put in place the infrastructure to change these numbers by building inclusive pipelines, more diverse teams and supporting their portfolio companies to prioritise including and fostering diverse talent."

Tweeting in support of the report, ex-"Dragons' Den" investor and black businessman Piers Linney wrote: "We are leaving tens of billions on the table that would benefit the wealth of every citizen. We now have undeniable and depressing data showing that something is very wrong. Quietly filing these reports away is unacceptable."

Reached for a response, U.K. founder network organization Tech Nation, which is credited with supporting the research, told us: “The Extend VC report highlights that just 12% of funding went to female founders, which is why Tech Nation is proactively working with Playfair Capital to provide office hours for female founders with leading VCs on November 5 and 12.

"Today’s report also showed that 91.5% of seed-stage funding went to white founders compared to 1.1% to black founders, so Tech Nation has also partnered with 10x10 VC and Founders Factory to host Black founder office hours on November 26," CEO Gerard Grech said, adding that the organization "will continue to support research when it comes to increasing inclusivity in tech and support I&D programmes and interventions which will make a real and positive difference".

Passion Capital partner Eileen Burbidge -- a female VC who, in 2018, was named on a list of the U.K.'s top 100 black and ethnic minority leaders by the Financial Times -- also welcomed the research when we reached out.

"It's great to see this data out there and I'm so glad that Extend Ventures, Impact X Capital Partners and Tech Nation have taken the time to collect and analyse the data," she told TechCrunch.

"Sadly I'm not surprised by the findings and at Passion, given that one of the founding partners is of an ethnic minority group, we've always tried to be as inclusive as possible. But you can't change or affect what isn't measured, so this is a fantastic first step."

"I'm glad this report will expand and further develop the conversation about how to make venture capital more accessible to all... across all educational backgrounds, social classes and ethnic & gender groups," Burbidge added, saying she supports all the recommendations -- "especially the ones that can have immediate action/impact" -- and said she'd welcome being part of conservations aimed at making progress.

(As it happens, one of Passion Capital's portfolio companies -- the insurtech startup Marshmallow, which is led by two Black twin co-founders, Oliver and Alexander Kent-Braham -- has just announced a $30 million fund raise on a $310 million valuation for a product that also focuses on serving underserved segments of society.)

This report was updated with additional comment.