Analysing The Diversity Issue In European VCs And How It Is Being Tackled

The state of diversity in the VC industry and potential remedies for these issues
Recently I went to TechXLR8, which is London Tech Week’s flagship event, held in June. There were many exciting startups, exhibitions and presentations and one of the discussion panels was particularly interesting. It was titled, “Equal Opportunities for Start-ups — Diversifying Funding Schemes”. It was a discussion around the need for more women and diversity within the VC and Angel investor pool, how the investor community can ensure equal opportunities for startups with founders from all backgrounds, as well as how investors can develop more inclusive portfolios and funding models.
The discussion was moderated by Sukhi Jutla, Founder and COO of Market Orders, and the panel consisted of Richard Blakesley, Co-founder and CEO at Capital Pilot; Nitesh Thadani, CTO at TRENIQ; Francesca Warner, Co-Founder of Diversity VC; and Karen Winton, Chief Growth Officer at Capital Pilot. It was an extremely fascinating discussion that lasted about 25 minutes and below I explore some of the key ideas and takeaways I got from there.
66% of VCs in the UK have no women in their decision making team (a decision maker being an individual on the investment committee team who makes a final decision on which investments to make, usually an investment partner) and 48% of VCs in the UK have no women in their investment team.
It is staggering to see that almost half of all UK VC firms have no women in the investment teams, especially when you consider 47% of the UK labour market are women (according to the August 2018 report from the Office for National Statistics). There is clearly a gender gap issue in the VC industry but the bigger point to consider is why there is gap and what we can do about it, which I touch upon later on. You can read more about these and other stats on Diversity VC’s report, “Women in UK Venture Capital 2017”.
There have been more and more sophisticated strategies on how to build a more inclusive portfolio. One of them is to have diverse decision makers, thus influencing the industry from the very top. Another is to allocate capital for specific type of startups e.g. certain funds set aside capital to female founded startups. These strategies are now generating more and more metrics that VCs can draw conclusions from. There have been reports stating that portfolios with diverse founders tend to outperform those that are not diversified.
I looked into this and found some compelling reads. For example, this report from First Round states that in their portfolio, companies with a female founder performed 63% better than investments with all-male founding teams. Another report from Harvard University showed that firms with diverse top management teams dramatically outperform firms with non-diverse top management teams. Therefore, as these metrics become more prevalent, VCs will quantitatively see the advantage of a diverse founding team, and startups themselves will see that by diversifying their team, they perform better and are more likely to succeed. This will further drive industry change.
An intriguing question from the audience was whether we can replace VCs, who can be seen as the intermediaries between those with capital to deploy and the startups who are seeking investment, with a disintermediation platform. In this way, any personal biases from investment decision makers are not influencing the investment decision. The panel members agreed that this method would be ideal but realistically would take a long time to be incorporated and trusted.
This is true as at the end of the day, limited partners (LPs) give capital to general partners (GPs) at VCs based on the GPs previous experience and reputation and expect them to deploy it based on their judgement, so VC is primarily a people business. There are companies looking to use a sort of disintermediation system such as Social Capital in the US. They have a Capital-as-a-Service platform, where their quantitative diligence engine evaluates a startup’s application for funding based on the performance of their business and future plans, rather than also basing it on subjective first impressions and gut feelings. Having started this programme a year ago, they recently published their results in an article. They have had 5,000 applications from 48 countries with 76 being approved — 30% of the founders were female and 80% were non-white. Two companies are going through M&A transactions and one has been through a strategic merger. As we get more and more results, we can evaluate whether this is successful but so far, the signs look positive!
I do think that it is difficult to rely on disintermediation because a business isn’t always captured by numbers especially at the early stage — you can’t capture ambition, leadership and strength of conviction on paper. Also, from the startups’ perspective, they want to work with VCs, who they feel will add value to their company and are a good fit. Often, this is something you can’t evaluate on paper, so you need these meetings to gauge this. A potential remedy to disintermediation can be to diversify the investors, so all of these unknown and unintentional personal biases are more likely to be removed.
Some current initiatives in the VC industry to combat the diversity issue
PitchBook research showed that in 2017, startups founded by women raised approximately 2% of the $85bn raised overall. Another statistic to note is that only 12% of funds were raised by mixed-gender teams.

There are various initiatives looking to tackle diversity issues in the startup ecosystem.
Looking at the US, one prime example is Arlan Hamilton’s Backstage Capital, which was established in 2015 and has now invested in 100+ startups with “founders who identify as women, People of Color, or LGBT, in the U.S.”. Arlan has recently raised another fund of $36m to focus on black women founders.
In the UK, there are some initiatives being undertaken as well. One of these is Diversity VC, which is a non-profit partnership promoting diversity in VC. They aim to do this in four ways:
- Network — helping underrepresented groups build a VC network
- Pathways — assisting VC firms in hiring talent from diverse background
- Ecosystem — connecting VCs to a broader network
- The Data Project — publishing data about diverse representation
It was set up in 2016 by Francesca Warner, Venture Advisor at Seraphim Capital; Travis Winstanley, Games Investment Director at Kuju; Lillian Li, Investor at Eight Roads; Anna Huyghues Despointes, Head of Strategy at OWKIN; and Farooq Abbasi, Principal at Costanoa. Their aim is to highlight that VC investors in the UK are predominantly white men, which might influence funding decisions. They published a “Women in Venture Capital 2017” report last year as mentioned earlier.
Furthermore, Diversity VC is working with the British Business Bank and BVCA to examine diversity in the VC industry. As of May 2018, they have had 10 VC firms sign up to provide anonymous data on every startup they meet. This means that for the first time, we can analyse the prefunding startup sector and understand how many startups that apply for funding have a diverse founding team and how many of those get funded. This will be very interesting to see and to identify specific issues. It may help identify the root cause of the issue: 1) Do we need to encourage more women and underrepresented people in tech to start companies, or 2) Is there a lack of necessary technical skills (which we can partly solve by improving education), or 3) Is the investment decision making process causing the issue?
Some other organisations tackling this issue that I wanted to highlight are:
- accelerateHer, initiated from Founders Forum in June 2016, targets the underrepresentation of women in tech. They aim to support women working in technology and to break down the barriers that deter women from entering the sector
- femalefounders.vc is a group of London-based female VC partners, who want to help female entrepreneurs build great businesses. They connect founders with VC partners who can lead deals at local funds
- YSYS is a startup community for founders, developers, creatives and investors in London. The community is made up of passionate individuals leading efforts to tackle inequality in London’s startup ecosystem
Clearly, there are a number of organisations looking into the diversity issue and there is a lot of work that needs to be done to increase diversification but it shouldn’t resort to positive discrimination — people should be appointed positions based on meritocracy. I do think that it is crucial to understand why there is this disparity. We need to consider questions such as whether women have educational or social barriers to enter the tech industry, whether different races / ethnic groups are more prone to enter different professions due it being seen as less risky or due to cultural habits etc. I look forward to seeing how this develops over the next few years!
If you have any comments, please get in touch by replying to this post, LinkedIn or Twitter!
By Abhilash Dubbaka
Abhilash Dubbaka is actively involved in the startup community and has worked in Investment Banking for 3 years. He is an investor with a passion for the technology sector, as well as a tech writer speaking to ambitious founders, industry leaders and venture capitalists. If you have any comments, please contact Abhilash through LinkedIn, Twitter or reply to this post.

