Where's all the VC investment in female founders?

If – like me – you’re a Monzo-carrying, Deliveroo-ordering, Instagram user, then Venture Capital has changed your life. Every year VC firms the world over invest billions looking for the ‘next big thing’, and in the UK the industry is thriving. In 2017, £5.6 billion of VC was invested into UK businesses, and in the past decade the sector has spawned start-up success stories like Revolut, Transferwise, Nutmeg, Skyscanner, Funding Circle, JustEat, Zoopla and many more.

These firms are not just household names; they increasingly embody the modern society in which we live – young, innovative, and working for passion and purpose, not just for profit. They’ve disrupted established industries, challenged decades-old assumptions on how companies are meant to operate, and got closer to customers than ever before. Some even let you take your dog to work.

Yet if you look a little closer, maybe these start-ups don’t look that much like our modern society after all. For one thing, their founders are almost exclusively male.

It was with this context that a team at the British Business Bank (the UK government’s business development bank), began to look into gender diversity in VC investments more closely. I was lucky enough to be part of this team, having taken 6-months out from consulting with Oliver Wyman to do a secondment in the BBB’s Strategy team.

Over the course of last summer, our team undertook a ground-breaking study which aimed to understand why VC investment didn’t reach companies with female founders, and tried to quantify the scale of the problem. The study was the first of its kind in the UK and involved creating a unique database that could show the extent of gender diversity in VCs’ pipeline of potential investments. The research required extended and in-depth collaboration with 45 leading VC firms, as well as industry bodies Diversity VC and BVCA.

Released earlier today, the UK VC and Female Founders report, reveals some painful truths about VC investment in the UK…

• For every £1 of VC investment, all-female founder teams receive less than 1p
• Last year, 83% of VC deals involved founded teams with no women
• 61% of VCs sampled didn’t see any all-female teams at their investment committee in 2017, and nearly a quarter didn’t see a single woman at all

These statistics beg the question, why don’t VCs invest more in teams with female founders? This is a big and complicated question – but we found there were a few important factors…

• There are relatively few women in industries such as software that tend to attract the most VC investment
• Professional networks are a crucial source of introduction and advice for VCs – but these seem to work less well for teams with female founders
• There’s likely some bias in decision-making against teams with female founders

The findings of our research are undoubtedly sobering. But in spite of this this, it’s perhaps not all doom and gloom.

For a start, we now know the facts – for the first time ever. The lack of female representation in founding teams receiving VC investment had long been talked about in the industry, but never before had anyone quantified it industry-wide. The scale of the problem revealed by this research should be a call to action for both industry and the government.

And perhaps more importantly, there is a real desire for change. Among those that I spoke to as part of this work. there was a realisation of the urgent need for action, paired with a recognition that there are no easy answers to these complex and interdependent issues. The report includes examples of the steps some VCs are taking to try and advance diversity and inclusion, and I hope these act as an inspiration to others reading the report.

Addressing issues of diversity and inclusion in VC and across our society requires new approaches, and this research is just the first step. The real work begins now!

You can read the full report here.