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Female start-up founders missing out on billions in funding

4 February 2019

Female start-up founders are missing out on billions of pounds of investment, new research published today finds.

The UK VC & Female Founders report found that for every £1 of venture capital (VC) investment in the UK, all-female founder teams get less than 1p. By comparison, allmale founder teams get 89p and mixed-gender teams get the remaining 10p. 

The research, commissioned by Chancellor Philip Hammond at Budget 2017 and undertaken by the British Business Bank, together with Diversity VC and BVCA, identifies specific barriers faced by female-led firms in accessing venture capital. It will help inform ongoing government work to tackle these barriers and boost the untapped economic potential of businesses. The report will be launched during a reception for leading businesswomen and the venture capital community at No11 Downing Street and hosted by Treasury ministers.

The report found that venture capital investment in start-ups with female founders is increasing but progress is very slow. At current rates, for all-female teams to reach even 10 per cent of all deals will take more than 25 years (until 2045).

The outcome of this is that 83 per cent of deals that UK VCs made, equivalent to 89 per cent by value, had no women on the founding teams. This equates to an estimated £5bn of investment going to start-ups with all-male founding teams.

The Chief Secretary to The Treasury, Liz Truss said: “More women starting up businesses will supercharge economic growth. It’s incredible that in 2019 men seem to have a virtual monopoly on venture capital. We need more investment going into startup ventures and more women putting businesses forward. It’s in everyone’s interests that financing processes are open and meritocratic to grow the economy and make use of all the talent we have.”

Robert Jenrick, Exchequer Secretary to The Treasury, said: “Up and down the country there are young women who are aspirational, motivated and hardworking. They are driven to succeed, and we need to make sure that nothing stands in their way, whether that is institutional barriers or a risk-averse culture. Our challenge is to back them and their potential.

Alice Hu Wagner, Managing Director, Strategy & Economics, British Business Bank said: “The British Business Bank exists to lower the financial barriers that hold entrepreneurs back from achieving their ambitions. Experience tells us that seemingly simple solutions are attractive but flawed: mandating female decision-makers risks tokenism; earmarking ‘women only’ money does not address underlying closed networks and experience gaps. More seriously, both approaches ignore the fact that women are not the only people under-represented in VC firms and their investments. We need new approaches to addressing these issues and this report is just a first step.”

Calum Paterson, Chairman, BVCA: “The findings are sobering but we are heartened that so many in the UK VC community chose to participate. I and others have long observed a lack of diversity in our pipelines of investment opportunities. Issues of diversity and inclusion are nuanced and complex. They will not be addressed by simple practical solutions alone. The industry needs to deepen its understanding of the external factors behind these results, as well as looking at ourselves within our own firms.”

Francesca Warner, CEO & Co-Founder, Diversity VC: “It is shocking that nearly a quarter of VC firms did not see a single female founder at investment committee in 2017, and this needs to be urgently addressed. Similarly, just five per cent of founding teams seen by VCs were all-female. This is disappointing and demonstrates that we have a long way to go until the industry is a place where anyone from any background can thrive and succeed.”

The research found that at the investment committee stage of the application process, 61 per cent of VC firms didn’t see any all-female teams in 2017 and a quarter (24 per cent) saw no women at all.

The disparity is partly because female founders have a very low representation in venture capital deals. Only five per cent of pitch decks which reach a VC firm are from all-female founder teams; one in five (20 per cent) are from mixed gender teams, and the remaining 75 per cent are from all-male teams.

It is well known that the low number of women in the sectors focused on by VC firms, such as software, AI and medical technology is one reason for their low representation in VC deals.

The British Business Bank research indicates that networking has a strong impact on subsequent venture capital investments. Start-up founders who are recommended to a VC firm by someone in the VC’s network, known as a ‘warm’ introduction, are 13 times more likely to get funded than founders who apply without a recommendation. The data shows that all-female teams are less likely to get a warm introduction to a VC firm - although when they do, they progress proportionately.

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