That this House has considered access to venture capital for people from ethnic minority and other underrepresented backgrounds.
It is a pleasure to serve under your chairmanship, Sir Jeremy. Venture capital in the United Kingdom is a unique and valuable industry that supports many smaller innovating companies with high growth potential. Our VC market accounted for £8 billion of investment in 2023. It is the largest VC market in the world after the US and China, and the largest in Europe by a considerable margin. As the CEO of the UK’s trade body for venture capital, the British Private Equity and Venture Capital Association, eloquently put it:
“Venture investment helps turn ideas, research and development into thriving businesses, generating economic growth, stimulating innovation and creating jobs and opportunities across all nations and regions in the UK.”
However, while our VC market is growing and strong, it is highly inequitable. For ethnic minorities, women and many other communities which there is either insufficient data or insufficient time to discuss today, our system of venture capital does not work. Businesses with founders from those communities receive a disproportionately lower percentage of VC deals and of total VC funding. With their priority of growth, the Government must do more to ensure that the venture capital market in the UK is inclusive and accessible.
I commend the hon. Lady for securing this debate. In Northern Ireland we have the Minorities Recognition Awards, which launched the innovators grant competition for ethnic minorities in Northern Ireland. It has been a successful collaboration that offers entrepreneurial individuals from ethnic minority backgrounds who are resident in Northern Ireland and have a novel business idea a choice to apply for a grant of some £10,000 to further develop their ideas. But to make it go further and work better, does the hon. Lady agree that the devolved institutions could benefit from further funding for the likes of these grants to potentially bridge funding gaps and ensure that people from all backgrounds can have the opportunity to succeed? I believe that many people have that ability.
I entirely agree that we need to do more to bridge that gap. I am delighted to hear about some of the efforts already being made towards that goal in Northern Ireland.
In 2022, 10% of first-time equity deals went to all-ethnic minority teams, with 19% of total investment value. However, while I welcome the broadly representative nature of these first-time equity deals, they are unequally distributed within ethnic minority communities, with only 0.24% of venture capital funding between 2009 and 2019 going to black founders. On a similar note, all-white teams accessed a mean investment of £224,000, whereas teams with one or more ethnic minority founders received an average of £49,000. All-ethnic minority teams received an average of £94,000—less than half of what all-white teams received.
I am proud to be a member and former chair of the all-party parliamentary group for ethnic minority business owners, which has not only supported ethnic minority business owners, but considered the intersection of diverse characteristics, including gender and ethnicity, on access to finance, which I will come on to later. I am proud to welcome Diana Chrouch, who provides the secretariat for the APPG and does amazing work on behalf of ethnic minority founders.
I am pleased to note the recent successes in the financial industry. In particular, I welcome the work of the Lending Standards Board on creating their access to financial services for ethnic minority-led businesses code. While that was an important and significant step towards greater equality, the Lending Standards Board does not directly cover venture capital, instead covering other financial instruments for investment. With the LSB acting as living proof that positive change can happen, and given the statistics I have mentioned, it is time for the Government to step up and ensure that that success is replicated in venture capital, and that we can tackle the inequality within VC.
I will begin in the usual way by congratulating the hon. Member for Richmond Park (Sarah Olney) on securing this debate. I also acknowledge the contribution of the hon. Member for Strangford (Jim Shannon), who seems to represent the whole of Northern Ireland in Westminster Hall. The hon. Member for Richmond Park rightly referenced the impressive work of Diana Chrouch, as the secretariat for the all-party parliamentary group for ethnic minority business owners. I am grateful to her for the challenge that she poses to Government on this issue. Perhaps unusually for a Minister, I hope that she will continue to challenge us in this space. She is absolutely right to say that although there has been some progress, we need to do an awful lot more.
It was a pleasure to join the hon. Member for Richmond Park and other members of the APPG for ethnic minority business owners at the King’s awards for enterprise reception in April, recognising current holders of the King’s award and encouraging more ethnic minority business owners to apply. There were some really inspiring stories from some of the ethnic minority business owners there who had won the King’s award. I welcome the work of the APPG in encouraging other ethnic minority business owners to apply for the award.
We do not do enough in this country to encourage and celebrate entrepreneurship among a range of under-represented groups, be it ethnic minority owners, on which the hon. Lady has rightly concentrated, or disabled entrepreneurs, women-led businesses or businesses led by veterans. We know there is more to do in this space, which is one reason why, last month, we launched a call for evidence on access to finance, to look at a range of issues facing small businesses in their access to finance. As part of that, we are considering particular challenges for ethnic minority business owners and other groups that I have referenced.
I just want to highlight that part of my pitch was that we could do more to encourage that voluntary take up. Anything compulsory would be very much a last resort. We should be encouraging voluntary take up in the first instance.
I am completely with the hon. Lady on that point and recognise that is exactly where Government can play a useful role in getting behind industry-led initiatives. We have certainly been doing that in the context of the invest in women taskforce and are also working with the Lending Standards Board on the code that it is developing. More broadly, we have the benefit of world-leading experts in this area, notably Professor Monder Ram, who leads the Centre for Research in Ethnic Minority Entrepreneurship at Aston University. Professor Ram’s comprehensive report “Time to Change: A Blueprint For Advancing the UK’s Ethnic Minority Businesses”, which was prepared in partnership with NatWest, was launched in 2022 and sets out the £75 billion potential in unlocking growth of ethnic minority businesses. As a Government committed to growth, that is a huge win for the UK if we can do more to unlock that potential. My Department plans to become an implementation partner for Time to Change, joining organisations such as the West Midlands combined authority and Be the Business. We will be working in partnership with Professor Ram’s centre to implement the recommendations of the report. I can tell the hon. Member for Richmond Park that by happy happenstance, I will visit Professor Ram at Aston University later this week.
To shift the dial, there has to be a shared drive to improve things. I pay tribute to the pressure that the hon. Lady and the all-party parliamentary group for ethnic minority business owners are placing on Government and on the industry more generally. I hope hon. Members will see the issues of access to finance for under-represented groups addressed in the Government’s small business strategy, which we aim to publish later this year.
Just yesterday I had the pleasure of attending the launch of the Lilac review here in Parliament. Its report considers the experience of disabled entrepreneurs and how investors and the financial services sector can better meet their needs. I take this opportunity to pay tribute to Michelle Ovens and Small Business Britain for their work in driving that review. It was a genuine pleasure to co-chair the review and in a similar way to this, many of the issues that came up around access to finance in that work generate significant questions for Government that we will seek to address in the months ahead. There are obviously similarities between our discussion here today around the needs of ethnic minority business owners and the needs of disabled entrepreneurs. For example, we know from research published by the British Business Bank that ethnic minority-led businesses are not as likely to be using external finance as white-led businesses. There is no lack of demand, but what ethnic minority-led businesses are pointing out to us is that when they apply for bank loans they are significantly more likely to be turned down, at 49% compared to 32% for white-led businesses. That appears to reflect differences in credit ratings, which suggests that that form of assessment may be insufficient. That view is supported by the fact that community development finance institutions, which are relationship-based, perform much better. In 2023, 24% of CDFIs’ business lending went to ethnic minority-led businesses and 41% went to women-led businesses. Similarly, the British Business Bank offers start-up loans for new businesses, of which 21% have gone to ethnic minority entrepreneurs and 40% to women.
11:27 am
Sitting suspended.
Lack of equality for venture capital investments is not only an issue in relation to ethnic minority communities; female founders are also far less likely to secure this kind of investment. In 2022, a report by the British Business Bank found that only 13% of first-time equity deals went to all-female founder teams, representing 6% of total investment value, and that there had been no statistically significant improvement in this during the past decade. The data is even more worrying for women from ethnic minorities: only 0.02% of the total amount invested through VC went to black women entrepreneurs. One of the most damning statistics of the inequality within the venture capital system is outlined in a 2023 British Business Bank report: only 3% of individuals in senior investment and non-investment positions were women from ethnic minority backgrounds, and concerningly, zero black women were found in positions of seniority in VC firms at the time of the study.
I am sure that many of us are aware of this as an issue affecting founders and business owners across the country. However, this inequality was highlighted to me by a constituent of mine in Richmond Park, who is the founder of Parli-Training, a business that has supported the Northern Irish and Scottish devolved Governments, NATO and even parliamentary offices in this very House. In the years leading up to and including 2024, it employed 170 people and, at its peak, generated a £250,000 in turnover. Despite that strong performance over many years, my constituent, who is a woman from an ethnic minority community, was recently denied investment from the Greater London Investment Fund. In her correspondence with the fund manager, she was told that the fund would not be viable for someone like her because she would be viewed as a risk, that those who access the funds usually come from wealthy backgrounds, and that the only funds available to female-led businesses in London usually take the guise of a grant. My constituent was told that she should try to find a grant that suited her business, or start a GoFundMe. Clearly, something has gone wrong.
Of course, a long discourse on the issue at hand can only go so far. What entrepreneurs from affected communities need is for the Government to take meaningful action to ensure that the UK’s venture capital industry is accessible and inclusive. The first thing we need is greater transparency in the reporting and recording of data, particularly for venture capital deals. That has been championed by many leading voices in the venture capital sector and by the APPG for ethnic minority business owners.
Ladi Greenstreet, CEO of Diversity VC, has said:
“There is a significant amount of power in reporting. Simply measuring the problem creates momentum for change”,
whilst the July 2023 British Business Bank report stated:
“Venture capital firms should participate in industry-wide surveys and make D&I data on their investments public”—
an effective action to improve diversity.
Furthermore, a November 2023 report by the British Business Bank in collaboration with other leading trade bodies outlined the
“scarcity of comprehensive data on ethnic minorities particularly at the intersection of gender and ethnicity.”
One measure that I hope the Government will consider is integrating the reporting of diversity data within venture capital tax reliefs. As recommended by the Treasury Committee’s 2023 report, provision of diversity statistics as a requirement for eligibility to receive the enterprise investment scheme or the seed enterprise investment scheme tax reliefs and the venture capital trust tax reliefs may be an effective way to improve reporting statistics, and to push companies to act on this important issue.
Secondly, I urge the Government to take more robust action to support women in finance and venture capital, including through the Treasury’s women in finance charter and the British Business Bank’s investing in women code. Despite their success, the schemes continue to be voluntary initiatives with relatively low levels of uptake, meaning that their progress in improving diversity in venture capital is too slow and restricted. For instance, the women in finance charter is currently signed by 400 companies covering 1.3 million employees, but there are more than 80,000 companies and 2.5 million employees in the UK’s financial services industry. On the other hand, signatories to the British Business Bank’s investing in women code accounted for 47% of venture capital deals, meaning that over half of VC deals would not fall under the code. Therefore, I echo the calls made by the Treasury Committee in 2023: will the Government consider mandating the Treasury and the British Business Bank to adopt a “comply or explain” policy with regard to both the WFC and the IWC?
I should note that the Treasury Committee also outlined that, should diversity statistics and reporting not improve quickly enough, it would be wise to consider calling for compulsory membership instead. With these changes, the Government can strengthen existing processes to ensure that women are not negatively impacted.
Another key call from groups including the British Business Bank concerns diversity at the top, referring to the lack of diversity in key bodies, including investment committees, which often have ultimate decision making on where capital is allocated. Too often, investment committees are made up of members with similar characteristics and backgrounds, leading to groupthink and the preservation of the status quo—a status quo that we know is inequitable.
In its July 2023 report, the British Business Bank recommended pushes for greater diversity in these leading committees as a crucial opportunity for greater accessibility and inclusion, with a correlation between diverse investing groups and diverse investment recipients. As recommended by the APPG for ethnic minority business owners, would the Minister consider requiring VC firms to adopt and implement a strategic investment inclusion framework, modelled after the Lending Standards Board framework, to dismantle structural barriers?
In conclusion, the Government have said that their priority in this Parliament is growth, but what good is growth if it is not accessible to all our communities? We are cutting ourselves off from a key source of that growth if we continue to enable barriers to accessing investment for all the excluded groups I have mentioned. The Government are committed to supporting businesses, but what good is that commitment if a number of businesses are excluded, whether deliberately or not, from finance and investment?
Our venture capital system continues to be unrepresentative of our communities, and the Government must do better to tackle the issue. The Government have long championed themselves as a Government of change, but many entrepreneurs looking for venture capital have so far seen more of the same from this Government. I hope that the Minister has heard the points made in this debate and takes meaningful steps to resolve the injustice we see in our venture capital industry, which hinders businesses, damages growth and continues a legacy of inequality.
Preparing for today’s debate, I was struck by the quote from Meghan Stevenson-Krausz, the joint CEO of Diversity VC, summarising the latest findings from the British Private Equity and Venture Capital Association. She said,
“Progress? Absolutely. Enough? Not even close.”
That is an excellent summary of the position and reflects the collective sense of urgency right across the VC industry, which I welcome. The BVCA study, to which Meghan was referring, is a good example of the progress that has been made, but, as a result, it underlines how far we still have to go. That 2025 report on diversity in UK private equity and venture capital covers 370 firms and over 14,000 employees, which is a significant proportion of the industry. It differentiates between roles, such as membership of investment committees, which take the key investment decisions, and junior or middle-ranking posts.
The hon. Member for Richmond Park cited an earlier report from the British Business Bank in her speech. That more recent report focuses on the VC sector itself. I will share some of the most striking findings. The encouraging headline is that 18% of investment professionals in the study are from an ethnic minority background, reflecting the UK population as a whole, and one third of that cohort are women. That matters because the most significant predictor of backing diverse entrepreneurs is the diversity of the decision makers themselves. One argument made is that the 18% overall figure masks a concentration in more junior roles, and there is some truth in that criticism. It takes time to progress to a decision-making position on the investment committee, so one would hope and expect that that disparity lessens as overall numbers improve. It is less pronounced than I expected. The study found that the proportion of ethnic minority staff was 25% in more junior roles, 19% at mid-level and 16% on the investment committee. The numbers at more senior levels have risen since the last survey and the trend is going in the right direction. But, as the hon. Member for Richmond Park rightly said, there is still more progress needed.
The final point I found striking was the representation of different ethnic groups. Within that 18% total, 11% were from an Asian background, while just 2% identified as African or Caribbean. For a black entrepreneur seeking investment, that 2% is perhaps the most relevant figure. As I am sure the hon. Lady and other hon. Members would agree, it is the individual experience that matters. Each individual has their own identity, which the term “ethnic minority” does not fully capture. When it comes to levels of venture capital itself, I welcome the data that the hon. Lady cites on first-time equity deals, with the number of deals for all-ethnic minority teams rising from 5% in 2013 to 10% in 2022. I share her concerns about the unequal distribution across different ethnic minority communities and agree that there is certainly more to be done, as I have previously alluded to. I was disappointed to hear about the very unfortunate experience of the hon. Lady’s constituent in applying for investment from the Greater London investment fund.
We have said that progress is happening but is insufficient. What more can we then do? The hon. Lady made a very eloquent case for compulsory data gathering and membership of industry codes. I will certainly reflect on the arguments that she makes on each of the different points that she raised. The hon. Lady will understand that I am, sadly, not the only Minister that has to be sympathetic to her case. I will certainly draw the attention of other colleagues in Government to the points she has made.
Taking her example of the investing in women code, that is growing year on year. The hon. Lady noted that signatories already accounted for some 47% of venture capital deals. When this year’s report is published, she will find that that figure has grown further. I have asked my officials to ensure that the hon. Lady gets an advanced copy. The power of a voluntary code or a pledge, such as the women in finance charter, is that it signals a shared commitment. Membership of a compulsory scheme perhaps merely signals compliance. For example, the invest in women taskforce has successfully raised a £255 million fund from its members to invest in women entrepreneurs. This private sector-led, Government-backed initiative has been effective in part because it is voluntary and not constrained by moving at the speed of the slowest.
Information is a key enabler to closing the finance gap. The British Business Bank research that I referred to earlier found that under-represented entrepreneurs are, overall, less confident about obtaining information on the different finance types and providers available. I urge all Members to point ethnic minority-led businesses in their constituencies to the resources available to them—particularly to start-up loans if the business is less than three years old, which are run through the British Business Bank, the CDFI that serves their local area, and more generally to the range of online information available from the British Business Bank.
The small business strategy, which the Government are working on, will begin to address the information gap and enhance our business support offer later this year. In the meantime, my Department has participated in events such as the UK Black Business Show, and we will join Founderfest 2025 to support entrepreneurs. We will continue collaborating with NatWest, Professor Monder Ram and the all-party group for ethnic minority business owners and others to advance this agenda.
I return to the summary from Diversity VC:
“Progress? Absolutely. Enough? Not even close.”
I welcome the constructive challenge that the hon. Member for Richmond Park posed of Government policies, and I share her sense of urgency on this issue. Through our industrial strategy and small business strategy, and partnerships with the private sector, we will seek to accelerate progress so that all entrepreneurs have a fair chance to secure the investment they seek to unlock the potential of their businesses.