MPs criticise the lack of diversity in the venture capital industry

• Aparna Sreevalsan
• 25 July, 2023

 

• Only two per cent of the funding goes to companies started exclusively by women.
• Companies run by black or other minority ethnic executives received significantly less investment.
• MPs urged the government to do more to increase the representation of women and racial and ethnic minorities in the industry.

VENTURE capital firms must be compelled to reveal diversity data if they are to continue to enjoy substantial tax reliefs, MPs on the Treasury Select Committee have urged.

Female-led businesses and firms run by black or ethnic minority executives located outside London or the south-east England receive significantly less funding in the venture capital industry, according to a new report by Parliament’s Treasury Committee.

MPs have slammed the industry’s “unacceptable failure” to invest in regional businesses and attacked a lack of diversity in investee companies.

Only two per cent of all venture capital funding went to the women-led businesses in 2022.

The Committee is urging the industry to make quick changes and is requesting support from government to hasten.

It also deemed this scenario to be “unacceptably concentrated” since data revealed that the “Golden Triangle” of London, Oxford, and Cambridge receives 80 per cent of all venture capital funding.

Nearly half of all venture capital funding goes to small businesses based in the capital, despite it only being home to under a fifth (19 per cent) of such firms.

Companies located elsewhere in the UK must wait longer to receive venture capital funding.

The government has been urged by MPs to expand the tax reliefs presently offered to businesses with fewer than seven or 10 years of age.

Harriett Baldwin MP, chair of Treasury Select Committee, said the statistics showing that most venture capital finance failed to reach female and ethnic minority-led businesses demonstrated a “shocking dereliction of duty given the level of government support for the industry through tax reliefs”.

She added: “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.”

It expressed dissatisfaction over the lack of information it had received from the Treasury on the extension of venture capital tax reliefs with expiration dates.

The MPs have also asked the Treasury to make it a criterion for eligibility to collect and disclose the diversity data of venture capital companies and their investments.

A type of finance given by investors to start-ups or rising businesses is known as venture capital. These businesses are thought to have a strong potential for development and rapid growth.

The investment might be risky for investors but is typically provided in return for a share of the business.

The government offers tax benefits to the venture capital industry in an effort to promote investment in the UK.