Technology companies have an undeniable impact on the lives we lead. Every day, companies that didn’t exist five years ago influence the food we eat, the clothes we wear, the way we travel, and how we communicate with our colleagues and loved ones.
Investors play a huge part in deciding whether these companies succeed or fail. By providing cash at critical stages, VCs enable startups to reach scale and profitability quickly. But we can’t allow all tech investors to be cookie-cutter replicas of each other, as the companies funded would be too.
Of course, we all know that diversity matters. The idea of fair representation and equal opportunities should appeal to the fair-minded, human side of all of us. It is also beyond doubt that diverse teams outperform their more homogenous competitors.
McKinsey’s 2016 research found that gender-diverse companies were 15 per cent more likely to financially outperform the industry median than their male-heavy competitors; while ethnically diverse companies were a huge 35 per cent more likely to beat the averages. Therefore, it is professionally and personally unsettling to know that the UK’s technology investment industry is starkly unrepresentative of the society across which it invests.
This is why I am delighted to be one of a group of four VCs from four different firms who have joined forces to launch Diversity VC, a non-profit partnership that aims to create a fairer, more representative venture capital industry.
In the context of venture capital, the impact of diversity is palpable. The 2014 Diana Report revealed that VC firms with female partners are twice as likely to invest in companies with a woman on the management team (34 per cent of firms with a woman partner, versus 13 per cent of firms without one); and three times more likely to invest in companies with women chief executives (58 per cent of firms with women partners, versus 15 per cent of firms without).
It is unsurprising then, given the lack of diversity in European VC, that 80 per cent of venture-funded technology startups in Europe have all-male founding teams, and that women are in the minority in 82 per cent of these companies. Our contention is that addressing the lack of diversity at source will drastically change these statistics.
Unconscious and unintended biases have crept into investment decisions, and VCs have funded founders who look like them. It stands to reason that great entrepreneurs have lost out on investment as result. Not only is this patently unfair, but it also means that the country has missed out on the economic upside that great technology companies provide.
This is why we need change. Especially as the technology industry is becoming ever more important to the UK’s post-Brexit economy. According to TechCityUK’s 2016 report, the digital sector accounts for 16 per cent of domestic output, 10 per cent of employment, and is growing 32 per cent quicker than the rest of the economy.
At Diversity VC, we are working with the current crop to help them realise their own unconscious biases, and remove them from hiring and investment decisions; with students and universities to better signpost the avenues into the industry; with entrepreneurs from a range of backgrounds, to help them achieve funding; and by producing original research.
We are proud to have hosted events with the University of Oxford and UCL, and to be taking a group of entrepreneurs and investors to speak to students at Cambridge this evening. We have worked with, and been endorsed by, a wide range of European VC funds including Balderton Capital, Downing Ventures and BGF Ventures; and we are working with the BVCA to produce the first report into the levels of gender diversity in UK venture capital – the results will be made public in May.
But this is just the beginning. If we are to create more representative VC community, we need investors, entrepreneurs and universities to join the movement. We also need to lend our voices to other organisations that are tackling this challenge. If you want to get involved, please get in touch at www.diversity.vc.
Only when we’ve achieved a more diverse VC ecosystem, and seen this impact the companies that are funded, can we be truly proud of the UK’s technology industry.