UK lawmakers have criticised the venture capital industry’s “unacceptable failure” to invest in businesses led by women and ethnic minorities in a new report calling for rapid change from the government and the sector. Businesses with all-female founders received just 2% of all venture capital funding in 2021, the report said, and less than 2% went to black and ethnic minority-led businesses. The cross-party Committee of MPs is now calling for improvements in transparency and diversity data, noting that the diversity statistics of venture capital firms and their investments should be a requirement to determine a firm’s eligibility for tax reliefs offered by the government to incentivise investment in the UK. The report encouraged venture capital firms to sign up to the Women in Finance Charter and Investing in Women Code, as both require the publication of gender and diversity statistics. Firms that fail to provide this information should explain why they have chosen not to do so as a condition of receiving tax reliefs, the report added. Harriett Baldwin MP, Chair of the Treasury Committee, said: “The venture capital industry plays a vital role in supporting the growth of the nation’s small businesses, but statistics which show just two pence in every pound of investment goes to all-women led businesses demonstrate a shocking dereliction of duty given the level of government support for the industry through tax reliefs. In the twenty-first century, it shouldn’t come as a surprise to investors that women and those from ethnic minority backgrounds can start successful businesses. Given public funds play a key role in the success of the UK’s venture capital sector, more must be done. Firms must be compelled to reveal their diversity data when applying to these tax reliefs in an effort to increase transparency and drive change. Government incentives could also be tweaked to encourage more regional venture capital investment.”
