UK's VC Industry Criticized by Treasury Committee for Lack of Diversity & Regional Investment

In a scathing report, the Treasury Committee has called out the venture capital industry for its "unacceptable failure" to invest in businesses outside of London and the South East, as well as those led by women and people of colour. The committee has urged both the government and the industry to take swift action to address this issue.

Venture capital is a critical type of financing for start-up businesses with high growth potential, but the committee's findings reveal a stark lack of diversity in funding recipients. Shockingly, only 2% of all venture capital financing in 2021 went to companies with exclusively female founders, and even less was allocated to businesses run by people of colour.

The committee highlighted the fact that the 'Golden Triangle' of London, Oxford, and Cambridge dominates venture capital funding, receiving over 80% of investments. This disparity is concerning, especially considering that these areas are home to just 19% of all small firms in the UK, yet they secure almost half of all equity agreements.

To address these issues, the committee has called for greater transparency in the industry. They urged venture capital firms to disclose diversity statistics when applying for government tax reliefs, which are designed to encourage investment in the UK. Additionally, the MPs encouraged all venture capital companies to endorse the Investing in Women Code and the Women in Financial Charter, both of which advocate for transparency and diversity in gender representation.

The committee also called upon the government and British Business Bank to consider establishing a fund aimed at fostering gender diversity in venture capital allocation. This move could help level the playing field and promote greater investment in businesses led by women and underrepresented groups.

Furthermore, the Treasury Committee criticized the government for failing to clarify the extension of venture capital tax reliefs, despite prior requests. Extending these schemes would provide founders and investors with more certainty and stability.

Harriett Baldwin, chair of the Treasury Committee, expressed her concern over the lack of progress in the venture capital industry. She emphasized the vital role venture capital plays in supporting the growth of small businesses and called for immediate action to rectify the glaring lack of diversity.

The committee's report comes at a time when two new inquiries into sexism in the City have been launched, indicating a broader push to address issues of diversity and inclusion in the financial sector. As the government and the industry grapple with these challenges, stakeholders are hopeful that this scrutiny will pave the way for positive change and a more inclusive venture capital landscape.