The UK’s venture capital industry has come under sharp criticism from an influential group of MPs. The Treasury Committee has taken aim at the sector’s diversity record and accused VC firms of focusing their investments too heavily on London and the south-east.
The cross-party panel of MPs said in a new report that all-female founders received just 2 per cent of venture capital funding in 2021, while less than 2 per cent were to businesses with Black or minority ethnic leaders. The committee said the statistics were ’unacceptable’ and called for greater transparency.
It also said that venture capital investment is ‘unacceptably concentrated in London and the south-east. Roughly 80 per cent of VC investment flows to the “golden Triangle” of London, Oxford and Cambridge, with London receiving almost half of all equity deals.
“Given firms elsewhere in the UK can take longer to become established, the maximum company age limit of seven and ten years written into the tax reliefs currently hold back economic growth and innovation and should be extended,” the MPs concluded.
The committee has also flagged the importance of globally competitive tax reliefs designed to promote investment in UK companies. It called on the government to provide clarity on when VC tax reliefs with expiry dates will be extended.
“Statistics that 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,” said committee chair Harriet Baldwin.
“In the 21st century, it shouldn’t come as a surprise to investors that women and those from ethnic minority backgrounds can start successful businesses,” she added. “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 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.”
The MPs said all VC firms should sign up to the Women in Finance Charter and the Investing in Women Code. Both initiatives require firms to publish gender and diversity statistics. They also recommended the government and British Business Bank consult on creating a fund to promote gender diversity in venture capital allocation.
Meanwhile with emphasis on equality, firms are looking not just at gender and race but also on background. The latest major law firm to set a target for hiring people from lower social background is Slaughter and May.
The legal heavyweight has joined the likes of KPMG in trying to up how many working-class people it employs. The proportion of working-class staff – defined by what their parents had when they were 14 – at the firm is currently 18.8 per cent. The firm wants to increase this to 25 per cent.
Currently, 10 per cent of the firm’s lawyers are working-class and it is aiming to increase that to 15 per cent. It is also looking to grow the equivalent proportion of its support staff from 34 per cent to 40 per cent.
“We’re sure there are lots of talented people out there who either don’t think of a career in law or who don’t think of a career here,” managing partner Deborah Finkler said. She added: “Tracking the socio-economic make-up of our workforce over a long period of time means that we have confidence in the data we are using to set these public targets and measure our progress.”
Another major law firm, Clifford Chance reported its 44 per cent gap between those from ‘professional’ and working-class background for the first time last year. However, it had not at the time set a target level for representation.
KPMG set its targets two years ago after finding the median pay gap between staff from working-class and professional backgrounds was 8.6 per cent. The gap at rival PwC is 12 per cent. (The writer is our foreign correspondent based in the UK)
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