Today: Feb 12, 2025

New Report Exposes Gender Divide in UK Venture Capital Funding Landscape

1 year ago

In a new report by Ada Ventures titledWomen in UK venture Capital”, it has come to light that male-owned venture capital funds have secured nearly ten times the investment from limited partners (LPs) in comparison to their woman-owned counterparts over the past six years. This stark disparity underscores a significant gender divide within the industry.

The findings, spanning the years 2017 to 2023, demonstrate that funds exclusively owned by men have garnered almost five times the capital raised by mixed-gender funds. This report, jointly conducted by VC firm Ada Ventures, Diversity VC, and Google Cloud, has shed light on the harsh reality of gender inequality in the venture capital world.

The statistics reveal that a mere 7 pence of every pound raised from LPs during this period found its way to all-woman funds, while 17 pence out of every pound was directed towards mixed-ownership funds. The implications of this disparity are profound, reaching far beyond the investment landscape.

Ada Ventures co-founding partner, Check Warner, commented on these sobering revelations. She emphasized that the gender gap within VC funds not only unjustly disadvantages these funds but also exerts a detrimental effect on the entire technology investment pipeline. The underfunding of woman-led VC funds directly impacts the prospects of diverse startup teams, particularly those led by women, ultimately leading to suboptimal financial performance.

Unmasking “Gender Washing” 

The report also brings to light the concerning practice of “gender washing” within the VC industry. This involves firms hiring more women to meet diversity targets but predominantly placing them in junior roles, thus perpetuating gender imbalances at higher leadership levels.

A Leadership Gender Gap Notably, the report uncovered that while women constitute 38% of the VC workforce, over 70% of leadership positions are occupied by men. This discrepancy underscores the pressing need for reform to break down the barriers obstructing women’s advancement within the industry.

Beyond Venture Capital It is crucial to acknowledge that the underfunding of woman-led firms extends beyond the realm of venture capital. Research from the British Business Bank in the current year revealed that startups founded by women received a mere 2% of the total equity investment in 2022, highlighting the pervasive nature of this issue.

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The Significance of the Report’s Findings

The data paints a stark picture: All-men-owned management companies raised roughly ten times more capital than all-women-owned counterparts. This disparity has direct consequences for the entire venture capital pipeline and, more crucially, impacts the likelihood of funding diverse teams, especially women-led ones.

CEO of Big Society Capital, Stephen Muers in his comment o, recognizes the report’s profound findings. Big Society Capital is committed to breaking structural barriers and empowering the advancement of woman entrepreneurship in the UK. They are well aware of the strengths that diverse leadership brings to the investment ecosystem and are actively working toward transparency and inclusion.

Old College Capital, the University of Edinburgh’s venture capital team, recognizes the vital role of Limited Partners (LPs) in promoting diversity. They recommend launching a Diverse GPs in VC Programme to break the entry barriers for diverse General Partners. This initiative aims to reduce the disparities in gender pay and carried interest and promote diversity at the investment committee level.

The Current Landscape

In recent years, the financial world has witnessed a sea change. Reports from organizations like Diversity VC, European Women in VC, and Level 20 have thrust diversity in venture capital and private equity into the spotlight. They have uncovered a disconcerting truth: that a staggering majority of investment capital tends to flow toward all-male teams. Entrepreneurs from marginalized groups, including those with disabilities and Black founders, often face a disheartening lack of investment.

Ada Ventures firmly believes that a more inclusive venture capital industry holds the key to finding groundbreaking solutions to our world’s most pressing challenges. Their stance is not without merit; a 2020 report from Kauffman Fellows revealed that diverse founders tend to yield 30% higher returns for investors upon exit, underscoring the financial incentives for promoting diversity.

The Investing in Women Code, a voluntary initiative introduced by the UK Treasury, is gaining traction. Over 200 signatories have committed to collecting and reporting data on the gender diversity of the founding teams they invest in. However, transparency is a two-way street. While venture capital firms are expected to provide data on their investments, the investors, known as “limited partners” (LPs), remain largely exempt from such requirements.

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The Power of LPs

Limited partners include entities like pension funds, university endowments, government-backed funds, and private investors. They hold immense sway in the world of finance, responsible for funding some of the most valuable companies globally. Products developed by companies backed by venture capital and LPs reach billions of people daily. As more capital pours into venture capital funds, particularly with the removal of the pension cost cap, the industry must ensure that these funds are distributed more equitably.

A deeper dive into the challenges and opportunities related to diversity in venture capital and private equity reveals a complex web of factors. Diversity is not merely a matter of social justice; it is an economic imperative. A diverse team brings a breadth of perspectives and experiences that can lead to better investment decisions and innovative solutions. Furthermore, diverse teams often lead to more diverse founders receiving funding, catalyzing change at its root.

The importance of driving diversity and inclusion in venture capital and private equity cannot be overstated. The financial performance of funds managed by diverse teams is evidence enough of the rewards of inclusivity. The ultimate goal is not only to maximize financial returns but also to drive societal change by ensuring that opportunities and investments are accessible to all. In the next part of our series, we’ll explore concrete steps and solutions that can pave the way for a more equitable, inclusive, and prosperous future in the world of venture capital and private equity.

Driving Diversity Home: The Recommendations

The report on “Woman Representation in UK Venture Capital” offers a roadmap for change.  Limited Partners should make concrete commitments (ideally in the form of goals) to invest in funds with diverse management teams. The voluntary initiative, the Investing in Women Code, is already making waves in promoting gender diversity in VC.  LPs should implement a specific due diligence program to ensure the funds they invest in are moving toward a more inclusive landscape. The Gender Pay and Ownership benchmarking questions should be integrated into the due diligence framework.

LPs should allocate more resources and funding to support diverse fund managers. Persistent gaps in gender pay and carried interest within firms should lead to the withholding of future funding.

Forging a More Inclusive Future

The significance of driving diversity and inclusion in venture capital cannot be overstated. It is a call to action that extends beyond financial returns; it is a mandate to change the face of venture capital and by extension, our world. By recognizing the imperative of transparency, breaking the shackles of diversity washing, and actively supporting diverse managers, we are forging a path toward a more equitable and prosperous future for all.

The stage is set for transformation, and it is imperative that the venture capital and private equity industry rise to the occasion. As the UK and Europe’s financial ecosystem matures, the need for commitment to diversity and inclusion becomes more apparent.

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