Funding for all-female-founded startups flatlines

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There has been no improvement in the share of equity investment deals raised by all-female-founded startups in the last decade, according to new research.

While the percentage share of deals going to mixed founding teams with at least one woman was at the highest ever at 27%, the progress for all-female teams had stagnated.

The report, published by the British Business Bank, found that all-female-founded teams accounted for 9% of deals in 2022 compared to 5% in 2011. However, the share of equity investment raised by all-female teams has remained at 2% over the same period.

The UK tech industry has long struggled with the inclusion of women and ethnic minorities, yet the new research suggests the situation may be worse than many expected.

There were, however, some signs of progress in the report. It was found that 13% of first-time equity deals, which according to the report is a useful indicator of the strength of the investment pipeline, went to all-female teams in 2022.

“The journey of raising venture capital can be challenging – but for underserved entrepreneurs, the barriers can be far higher and this needs to change,” said Louis Taylor, CEO of British Business Bank.

“Together, we can create the systemic change needed to unlock the full potential of talented UK entrepreneurs, wherever or whoever they are.”

Addressing the female funding deficit

To address the inequality in venture capital funding, the government-owned British Business Bank offered three pathways for UK funds to improve diversity in investment.

The first recommendation suggests that it will be easier to diversify the startups being funded if there is diversity in the decision-making team at VC firms.

By promoting diversity in VC leadership, the report said that there would be less discrimination during the dealmaking process.

Secondly, the bank suggested a greater focus on inclusion in the investment pipeline. Research from the bank found that 65% of VC firms admitted to not approaching their search for investment opportunities any differently when they seek to identify underrepresented founders.

The British Business Bank said that making an active effort to be inclusive in the investment pipeline process was necessary for progress to be made.

Finally, the bank recommended embracing transparency and accountability among VCs. The report said that “increased transparency and accountability among venture capital firms is key to delivering change and enhancing diversity in venture capital investment”.