An opportunity to close the gender and race finance gap

The release of the government’s “Inclusive Britain” report last week was warmly welcomed by female entrepreneurs like myself, as it acknowledged that access to finance is still a major barrier for ethnic minority and female entrepreneurs. This is something I personally witnessed when I embarked on my journey as an entrepreneur in 2012.
The report launched by Minister for Equalities, Kemi Badenoch MP, has been put together after working with key stakeholders, including lenders to better understand the underlying causes and to agree interventions to improve access to finance. That’s why initiatives like the UK-wide Start Up Loans programme, the free mentorship provided, the Future Fund and the BEIS-supported HSBC Entrepreneur Support programme are so important to support bridging this gap.
According to research by Salonica Maroon, ethnic minority entrepreneurs are over a third more likely to have given up on their businesses due to a lack of funding compared to their white peers.
This comes at a time when it’s proven that diversity creates superior returns and female entrepreneurs have been outperforming their male counterparts. Despite these encouraging headlines, there continues to be a widening gap in funding access for ethnic minority and female entrepreneurs.
The Alison Rose Review of Female Entrepreneurship found that, given a level playing field, women business owners could add £250 billion to the economy in a decade and BCG reported that female-founded companies are more likely to have an exit and a higher return for investors. This just further highlights that backing female entrepreneurs is good business.
However, according to research firm Pitchbook, all female-founding teams secured only 2% of venture capital in 2021, despite owning 38% of businesses and a joint study produced by Cornerstone Partners, Engage Inclusivity, Diversity VC and Beauhurst founded that Asian and Black businesses in the U.K. made up just 7.3% and 2.9% of the total raised in 2019.
The same study also found that three-quarters of entrepreneurs came from advantaged socioeconomic backgrounds and a majority graduated from prestigious universities, with hardly any came from families living on welfare entitlements.
So, when women and ethnic minority entrepreneurs are outperforming and can add so much to the economy, what can be done to fix this imbalance and bridge the funding gap?
I believe that representation is key and with 76% of the venture capitalist firms in the UK being surveyed as white, 70% as men and 33% as having a degree from either Oxford, Cambridge, Harvard, or Stanford, introducing diversity is essential. Especially when female venture capitalists have been proven to be two times more likely to invest in female founders than their male counterparts.
Whilst one way is to increase diversity in existing funds, it was recently highlighted at a panel that I was moderating for Ada Ventures, that a key opportunity for driving tangible change in the eco-system, comes from increasing the number of emerging funds launched and run by women and ethnic minority founders. Several such funds have launched in the UK in recent years with female founding partners including Ada Ventures, Zinc Ventures and EKA Ventures, where the British Business Bank has been their largest investor through the Enterprise Capital Funds programme.
The “Investing in Women Code” has been signed by 134 lenders and investors including many high street banks and over 90 venture capital firms. The BEIS is working with these lenders in 2022 to collect relevant data on the finance gap and identify follow-up actions. I welcome such initiatives from the Government to work with stakeholders to drive change.
As the report suggests, like many of the other biases faced by ethnic minorities and women in our society, we need to start tackling the problem as early as possible, in family homes, schools and universities. I was extremely fortunate to grow up in a family where I was exposed to entrepreneurship from an early age and am certain this is what propelled me to explore entrepreneurship after a career in investment banking.
That’s also why initiatives like HSBC’s Entrepreneur Support programme, supported by BEIS, for under-represented university students are important. The programme will equip aspiring ethnic minority and female entrepreneurs with the skills they need across numerous topics including finance, investment, advisory and publicity.
Whether it comes in the form of skill-based teaching programmes or mentorship, initiatives such as these are key to reach ethnic minority and female students at an earlier age, before they embark on their entrepreneurial journeys and hopefully encourage more down this path.
Whilst there has been great progress in the last decade, the government’s report provides a unique opportunity to drive even more change in the decade ahead. As MP Kemi Badenoch said; “Anyone in this country should be able to achieve anything, no matter where they live or come from.”
Rupa Popat is a serial entrepreneur, board advisor and angel investor in under-represented entrepreneurs and female-founded venture capital funds.
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