Here’s what Britain’s venture capital limited partners are backing: men

  • Britain’s venture capital sector has a diversity problem.
  • Male-owned VC funds raised 10 times more than their women-led counterparts since 2017.
  • That’s according to an in-depth analysis of the sector by impact fund Ada Ventures.

The institutional investors who pour money into Britain’s venture capital sector prefer to back funds run entirely by men.

According to a report by impact fund Ada Ventures, all-male-owned firms raised ten times more capital than their female counterparts between 2017 and 2023.

A similar disparity was discovered in mixed-gender funds, which raised nearly five times as much as male-owned funds.

During the period, 7p of every pound ($1.2) raised by a venture capital firm went to all-female funds, 17p went to mixed funds, and the remaining 76p went to all-male funds.

The study, conducted in collaboration with Diversity VC and Google Cloud, looked at 156 UK-based companies that had received “first close” funding from limited partners such as insurance companies, pension funds, and sovereign wealth funds. During that time, these companies raised approximately 6.6 billion pounds.

The diversity issues in venture capital are well documented, but a slew of women have left the industry this year.

“The majority of female venture capitalists I know are brilliant – so something isn’t working,” said Ekaterina Almasque, partner at deep tech fund OpenOcean.

According to Ada Ventures founder Check Warner, a lack of diversity ripples through the entire investment pipeline.

“It directly impacts the likelihood of diverse startup teams, particularly women-led teams, getting funded,” she went on to say. “It also has a negative impact on financial performance.” Change must begin at the very top.”

According to Ada Ventures’ report, just over a fifth of the 487 people with the top titles of partner, general partner, or founder are women.

However, there is a disconnect between people with significant ownership and top roles; only 130 people (27%) have significant ownership of more than 25% of those top jobs. Just under 18% (23) of those 130 are women. According to the report, this means that women are less likely to own a fund, despite the title implying otherwise.

People with the greatest stake in the firm, such as general partners, typically reap the greatest rewards, known as carried interest, if a portfolio company is sold or goes public.

Ownership frequently entails helping to raise funds. Partners must commit a percentage of the fund in order to have “skin in the game.” This entails writing a potentially large check, which Almasque believes can be difficult for women who lack personal wealth.

According to the European Women in VC 2023 report, venture capital is notoriously relationship-driven, and female fund managers find it difficult to interact with male-dominated LP teams.

Indeed, LPs are opaque, which contributes to the industry’s lack of diversity. It can be more difficult to hold top actors accountable for where funds are allocated if there is no transparency about a firm’s LP base.

According to Almasque, who is also a member of European Women in VC, some LPs do request that funds diversify their teams. However, having a large number of partners does not work for VC economics, so fund managers retreat and give title without fairly distributing ownership, according to Almasque. As a result, she claims, diversity is “cosmetic” and fails to fundamentally alter the status quo.

Warner of Ada Ventures advocated for LPs to report on the ownership of the funds in which they invest, breaking down carried interest and investment committee membership by gender and other protected characteristics.

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