In our previous article “Raising Venture Funding is Difficult if You’re Female,” we explored the issues female founders have when it comes to raising venture funding. We reported that:
This data points to women being both less likely to apply for and receive venture funding than men. This is an issue that could affect the types of ideas and businesses that become successful, and ultimately shape our lives.
Of course, there are likely to be many reasons for these discrepancies, many of which are cultural or societal and not specifically related to venture funding. For example, women are seriously underrepresented in business as a whole, with only 22% of senior management positions being filled by women in the UK.
Looking at venture funding specifically, one issue that could contribute to the lack of funding female teams receive is the underrepresentation of women in the venture capital industry.
Diversity Drives Business Performance
First, it’s important to understand the effects diversity can have on a business. Several studies report that diversity within a business can improve how successful it is.
In early 2018, the Harvard Business Review published a study that detailed how diversity affects innovation. The study looked at over 1,700 companies in eight countries.
The results were stark. The report discovered that not only was there a statistically significant relationship between diversity and innovation in all the countries studied, but the relationship grew stronger the more diverse the companies were. In fact, the most diverse companies were also the most innovative.
Based on the results of the survey, the team behind it concluded that by increasing the diversity of a management team, companies could increase revenue by 1%. It also found that improving gender representation could lead to a 2.5% increase in revenue.
McKinsey published a study that had similar findings. The management consultancy analysed data from over 50,000 managers across the world and found that teams with male to female ratios of between 40% and 60% produce results that are “more sustained and predictable” than less balanced teams.
The study also showed a correlation between gender diversity and metrics such as operating profit and consumer satisfaction.
A more recent report by the same group builds on this, having found that companies in the top 25% for gender diversity were 21% more likely to have above average profits than those in the bottom 25%.
All these reports point towards the likelihood that gender diversity can increase company performance. If this is the case, it would make sense for businesses across industries to have diverse teams including those in venture capital. However, that doesn’t appear to be the case.
How Underrepresented are Women in Venture Capital in the UK?
Despite the suggestions that diversity can lead to success, the venture capital industry is lagging somewhat. The latest data about diversity in venture capital comes from a 2017 report by Diversity VC, a group that aims to promote diversity in the venture capital industry.
The report, titled “Women in UK Venture Capital 2017,” conducted research that showed in detail the diversity issues venture capital is facing. The study covered 160 firms with over 1,500 employees.
First, the report found that women comprise just 27% of the UK venture capital labour force, far less than in the UK labour force as a whole, in which 47% of workers are female.
As you look up the career ladder, the percentage drops even further. Just 18% of investment roles – those with the titles ‘Analyst’ to ‘Partner’ — are filled by women.
When it comes to the people actually making investment decisions — the report defines these as those within a venture capital firm on an investment committee that makes the final decision on which investments to make — only 13% of positions are filled by women.
The report also found that many firms don’t have any female representation in senior positions at all. 48% of firms have no women in their investment teams, while a whopping 66% have no women in their decision-making teams.
This lack of representation could have serious repercussions, and not only in the world of venture capital. Those in charge of making investment decisions determine which companies receive funding, which could in turn determine which companies are successful and ultimately shape the world we live in.
Diversity VC said this about the issue:
“As venture capitalists, the culture and tone we set in our firms has a significant impact. It not only affects our immediate colleagues, but impacts on our portfolio companies and on wider society too. 6 out of 10 of the world’s most valuable companies were fuelled to success by venture capital, whose culture directly affects 100,000+ jobs and permeates through the products we all use on a daily basis.”
What is Being Done to Get More Women Involved in Venture Capital?
While the overall low level of gender diversity in venture capital may make for depressing reading, there are signs that the industry is becoming more diverse.
Identifying and admitting there is a problem is the first step to improving the situation; this is a challenge being taken up by many organisations throughout the venture capital industry.
At the forefront is Diversity VC, the organisation which produced the above report. Diversity VC has the goal of seeing women make up at least 20% of senior-level positions by 2020. It points to the higher percentage of women in junior roles as evidence that this goal is achievable.
Additionally, the group is actively working with firms to help bring about change by both attracting more women into venture capital and retaining and promoting those already working in the industry.
It also collaborated on the report “Diversity and Inclusion in Tech,” a guidebook that it says can help entrepreneurs “plan, deploy, monitor and improve a Diversity & Inclusion strategy suited to your company.”
Of course, Diversity VC isn’t the only organisation looking to get more women involved. Here is a look at some of the other organisations and groups aiming to make venture capital more inclusive:
These are all examples of initiatives that could begin to change the landscape for women working in venture capital.
There Are Signs of Change
The efforts these organisations and others like them are putting in may be paying off, albeit at a slow rate. According to Crunchbase, 21 per cent of venture firms set up globally between 2015 and 2018 have at least one female founder. This is three times the rate of the top 100 venture capital firms.
Unsurprisingly, firms that are founded or co-founded by females or those that have an unusually high percentage of female partners invest more in female entrepreneurs, according to the report.
Additionally, while there may be far fewer women working in venture capital than men, there are still plenty of female success stories. Here are some of them:
Ultimately, women are seriously underrepresented in venture capital firms, and worryingly this lack of representation is reflected in the lack of venture funding that women receive. Now the issue is being given some light, it will hopefully pave the way to make the industry fairer and more diverse.
This article was written by Sharon Bryden, a director at Reparo Finance. Sharon has 20 years’ experience working in finance and has been involved in lending to SMEs and large corporates in various sectors. She is passionate about diversity in the industry.
Reparo Finance is an independently owned company that provides finance to SMEs in the UK, especially those which may be finding it difficult to receive funding from traditional methods of funding. It is run by an experienced team and aims to provide quick financing decisions and a personalised service for applicants. The company offers funding between £25,000 and £2 million.
To speak with one of the team, please get in touch on firstname.lastname@example.org or 0161 451 5714.