For every £1 of venture capital investment, 1p goes to female entrepreneurs

That's the shocking finding of new research commissioned by the Treasury.

As a result, the report by the British Business Bank, Diversity VC and the British Venture Capital Association said female start-up founders are missing out on £5bn of investment.

All-male founder teams get 89p of every £1 investment with mixed-gender teams taking the remaining 10p.

Commissioned by chancellor Philip Hammond in the 2017 Budget, researchers sought to identify the barriers faced by women-led businesses in accessing funding.

It found that venture capital flowing into female-led firms is growing but very slowly. If the current rates continue, female entrepreneurs won't receive 10% of all deals until 2045.

The reasons for less female entrepreneur funding

The research found that at the investment committee stage of the application process, 61% of venture capital (VC) firms saw no all-female teams in 2017 and 24% saw no women at all.

The disparity can be partly explained because female founders have a very low representation in investment deals.

Just 5% of pitch decks which reach a VC firm are from all-female founder teams, one in five are from mixed gender teams and 75% are from all-male teams.

A low number of women in key sectors focused on by investors such as as software, AI and medical technology is one reason for women's low representation in deals.
 
The report concluded that networking has a strong impact on funding.

Founders who are recommended to a VC firm by someone in the VC's network are 13 times more likely to get funded than founders who apply without a recommendation.

All-female teams are less likely to get a warm introduction to a VC firm although when they do, they progress proportionately.

Alice Hu Wagner from British Business Bank said: "Experience tells us that seemingly simple solutions are attractive but flawed: mandating female decision-makers risks tokenism; earmarking 'women only' money does not address underlying closed networks and experience gaps.

"More seriously, both approaches ignore the fact that women are not the only people under-represented in VC firms and their investments. We need new approaches to addressing these issues and this report is just a first step."

Liz Truss, chief secretary to the Treasury, added: "More women starting up businesses will supercharge economic growth. It's incredible that in 2019 men seem to have a virtual monopoly on venture capital.

"We need more investment going into start-up ventures and more women putting businesses forward. It's in everyone's interests that financing processes are open and meritocratic to grow the economy and make use of all the talent we have."

Calum Paterson, chairman at BVCA, commented: "The findings are sobering but we are heartened that so many in the UK VC community chose to participate. I and others have long observed a lack of diversity in our pipelines of investment opportunities. Issues of diversity and inclusion are nuanced and complex.

"They will not be addressed by simple practical solutions alone. The industry needs to deepen its understanding of the external factors behind these results, as well as looking at ourselves within our own firms."