The House of Commons Treasury Committee has criticised the “unacceptable failure” of the Venture Capital industry to invest in regional businesses.
Coming at the end of a six-month enquiry, the committee concluded that VC investment flows to the “Golden Triangle” of London, Oxford and Cambridge, with London itself receiving almost half of all equity deals despite accounting for just 19 per cent of small businesses.
The cross-party committee called for rapid change from both government and the industry on the issue of diversity after finding that, in 2021, less than two per cent of VC funding went to black and ethnic minority-led businesses and female-led businesses.
Harriett Baldwin MP, chair of the Treasury Committee, said: “The venture capital industry plays a vital role in supporting the growth of the nation’s small businesses, but statistics which 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.
“In the twenty-first century, it shouldn’t come as a surprise to investors that women and those from ethnic minority backgrounds can start successful businesses. 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 their 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.
“As a Committee, we will continue to keep a close eye on these important topics and will be investigating small business finance and sexism in the City in two new inquiries launched recently.”
The committee also advised that funding limits on the EIS and VCTs schemes be raised after Mercia chief executive Dr Mark Payton told them that the limits restrict the ability to help companies grow and scale-up.
The committee further encouraged all VC firms to sign up to the Women in Finance Charter and Investing in Women Code, and recommended the government and British Business Bank consult on creating a fund with the specific purpose of promoting gender diversity in venture capital allocation.
