UK non-profit Diversity VC urges venture capitalists to build a more ‘sustainable and responsible’ industry, as representation of women at the top of the industry remains static since 2017.
Today, non-profit organisation Diversity VC has published ‘Diversity in UK Venture Capital 2019’, a report which analyses the gender, ethnic, education, and career backgrounds of venture capital professionals in the United Kingdom. The report is authored by Diversity VC, and sponsored by Silicon Valley Bank.
The is the most extensive study of the industry to date, the report has analysed 171 UK venture capital firms, employing over 2110 people. This is also the first time that the career background, education and ethnicity of the UK venture capital industry has been analysed.
Breakdown of key findings below
The report finds that despite the attention and focus on diversity over the last two years in the industry, the representation of women at senior levels remains static. Yet the report also finds that women are likely to have a higher level of educational attainment in the same positions. The report also finds that the industry is significantly less ethnically diverse than the London population, despite London being the centre of the industry.
- There are more female investors in UK venture capital than two years ago: now, women represent 20% of all investing roles; in 2017, this figure was 18%
- However, the representation of women at senior levels has remained the same: 13% in 2019; 13% in 2017
- Investment committees were also analysed: these are typically the most senior group of investment professionals at a firm, and have ultimate authority over the investments made by the firm: only 13% of these were women
- The number of firms with all-male investment teams has fallen from 48% to 37% in two years. However, nearly two-thirds of firms – 63% – have no senior women in their investment teams.
- 37% of UK firms have all male investment teams; this figure was 48% in 2017
- A third of UK venture capital firm employees graduated from a business school; or one of Oxford, Cambridge, Harvard and Stanford. The proportion is similar to venture investors in the US. This stat includes non-investment team members
- 18% of all venture capital investors in the UK attended either Cambridge or Oxford
- Women in venture have a higher level of education than men at all levels. In senior investment positions, women hold an average of 1.5 degrees, compared with 1.3 for men.
- 8% of junior level women have a PhD or similar, compared to just 1% of men
- Given that venture capitalists invest in technology entrepreneurs, it is surprising that just 8% of venture capitalists have prior experience in a startup or growth business, and only 4% have worked in a technology role
- Venture Capitalists were most commonly found to have prior experience in Consulting (20%), Finance (18%) or Banking (12%)
- This report set out to set a benchmark for ethnicity in UK venture capital
- Of the the 2114 venture capital professionals in the UK, 223 answered Diversity VC’s survey, therefore ~10% of the sample responded:
- 76% of the UK VC industry is white, which compares to 59% of the London population (where the majority of VC funds are based)
Response from the industry, and insight from Diversity VC
Before the report was published, Diversity VC released the findings to the venture capital industry, in order to gather feedback, and to develop some clear ways forward. The founders of Diversity VC also shared their insight as to why diversity in venture capital matters to the technology industry, and to society at large.
Check Warner, Co-Founder and CEO of Diversity VC: “This report matters, as the venture capital industry has an outsized impact on the rest of the economy. VCs invest in early-stage technology companies, which have the potential to become influential powerbrokers in the future. As venture investors enter the fray so early on, they can make a huge impact on the makeup and culture of the organisations that they fund.”
Travis Winstanley, Research Lead and Co-Founder of Diversity VC: “Diversity is fundamentally good for business. ‘Good’ does not just mean delivering great returns, but it also means building a long-term, sustainable businesses.”
Lillian Li, Co-Founder of Diversity VC: “This report is hugely important for the VC industry as we truly begin to address more complex dimensions of diversity and to push the industry’s engagement with the topic”
Erin Platts, Head of EMEA and President of UK Branch of Silicon Valley Bank: “While it is great to see an improvement in the number of women in the sector, it is critical that the VC industry continues to increase the number of women and ethnically diverse investors in its ranks. Along with Diversity VC, Silicon Valley Bank works closely with its clients and other industry organisations to address this issue, and by working together and increasing transparency we have a greater opportunity to reach gender and ethnic parity in the industry.”
Gender: Change is happening, but not fast enough
The percentage of women venture capitalists has increased over the last two years, but the percentage of women in senior investment roles has not changed: 83% of firms have no women on their investment committees. There is a significant drop in the percentage of women working in venture capital, that have five or more years of experience. As previously noted, there has been a recent increase in the number of women hired at junior and mid-levels of seniority, suggesting that the representation of women at a senior level may improve in future.
Kathryn Mayne, Managing Director, Horsley Bridge International, “The visibility of diversity as a topic has changed substantially, but we’re still in the early innings of it.”
Education: Greater education diversity could improve performance
In an industry that requires commercial, financial and legal skills to deliver growth, it is typical for personnel to have a university-level qualification. However, a lack of educational diversity within firms may be inhibiting performance. Research conducted by Gompers & Kovvali (2018) shows that investment teams with diverse educational backgrounds are 11.5% more likely to realise an exit on their investment portfolio than peers with homogeneous teams.
Suranga Chandratillake, General Partner of Balderton Capital, “The incoming generation of venture capital professionals are beginning to get closer to parity from a gender perspective but educational background remains stubbornly biased those from privileged backgrounds.”
Career: Diversity of experience could offer competitive advantage
Over 40% of UK investors have a finance, banking or consultancy background. Just 12% have experience working in a start-up, scale-up or technology company. At top-tier US venture capital firms, 40% of investors have entrepreneurial experience, and a further 20% have been senior executives at start-ups (TechCrunch, 2015). Our data suggests that greater diversity of experience could be a source of improved returns.
Alice Hu Wagner, Managing Director, British Business Bank, “We focus on diversity because we believe we will make returns with this strategy. We hope in the long term, diversity will be a point of differentiation and competitive advantage for the UK’s tech ecosystem.”
Inclusion: Diversity without inclusion doesn’t work
Our study focuses on the implicit link between diversity and performance. However, it is worth noting that diversity without inclusion doesn’t work (Hewlett et al., 2013). It follows that firms with inclusive cultures are more likely to succeed than those that have diversity alone. Firms that have hired more diverse teams but haven’t changed their processes, cultures and environments are likely to struggle to maximise the opportunity that a diverse workforce offers.
Niklas Zennstrom, Partner and CEO of Atomico, “For a number of reasons there is a large inequality of opportunity in venture capital currently. It is mainly to do with inherent unconscious bias among decision makers, but inequality of opportunity is also related to socio-economic advantages such as networks, access and safety nets”
The future of venture capital must be responsible and sustainable
Travis Winstanley, Research Lead and Co-Founder of Diversity VC, “It is our hope at Diversity VC that the venture capital industry is moving towards a more responsible and sustainable form of investment, where attention is paid not just to generating financial returns, but to the holistic impact that the firms and the companies they run have on the world around them. We believe that responsible investing is the future of the venture capital industry and D&I as an important component of that future.
Alice Hu Wagner, Managing Director, British Business Bank, “We believe diversity to be a social good. A diverse tech ecosystem is a strong and resilient ecosystem. From that perspective we would want as many diverse components in the ecosystem as possible.”