As we come out of the quieter times of Summer and head into the busy festival season in the world of Tech, where we will be addressing issues around Diversity & Inclusion at Bristol Tech Festival and Tech South West Talent Summit, we wanted to share the findings from our August roundtable on the very pertinent topic: Investing in Diverse Founders.
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A report last year by Extend Ventures found that all-ethnic and female teams received just a fraction of the funding available across UK VC over the last decade versus all-white teams and male founders.
So for this Roundtable, we partnered with NatWest and brought together a fantastic group of people from various backgrounds as founders, investors and advisors to explore the reasons behind this disparity and to think about ways in which we can collectively help hasten change.
This is a summary of what we learned.
Roundtable Attendees & Contributors
- Charly Patrick, Regional EcoSystem Manager, NatWest (Hosting)
- Louis Spencer, TMT Lead at NatWest (Hosting)
- Tanuvi Ethanandan, Founder of Data Duopoly
- Amy Newton, Founder at Inclusive Angels & Newtons Theory
- Briony Phillips, Investment Activator Programme/Quarterly Investment Briefing & Rocketmakers, Scout for Ada Ventures
- Monika Radclyffe, Head of Business Incubation at Uni of Bristol & Centre Director for SETsquared Bristol
- Sado Jirde, Director of Black South West Network
- Joyann Boyce, Founder of Arima & Co.
- Stuart Harrison, Founder of FinTech West & Invest West and Chair of Ethical Equity
What have we noticed in our own roles and experiences? Is equity investment still principally a white male dominated environment?
Tanuvi noted that despite having an overall positive experience as one of two female founders, it is still a surprise to realise how few there are openly seeking equity investment.
“When we went to pitch events, yes, we would be two women up on a stage, but we would probably be the only ones. That was a huge shock, to be the only ones in the room”
Stuart pointed out ‘I have often thought that the female founders I have interviewed seem to come across as far more capable and have that sort of X factor which the male founders don’t always have, but there’s a much smaller percentage of them, which leads me to conclude that you have to be really good as a minority founder in a business to actually make it through the system, whereas it’s much easier as a male’
And Joyann built on this “I’ve been at networking events with some people on the table, and the investor would say ‘oh I’ve had a beer with a guy and I invested the next day’, but it made me realise that if you’re not there for that beer, then how do you have a chance of getting the investment?’
Briony says ‘The equity investment system is very entrenched, and still largely full of older white men. It is changing, but slowly. Which raises the question ‘Do you try and improve the existing system? Or do you try and find some alternatives that support more people?’
So is it the people or the process?
Joyann ‘It’s both aspects, it’s the people and it’s also the process. Because even when people are put in positions to headhunt and find people, they’re putting them forward and either it’s without the required information, or they’re putting people forward and there are other biases that stop them from getting selected. So somewhere in the process, whatever type of funding we’re looking at, there’s something that’s allowing women, disabled or Black founders to drop off the system”
Amy Newton ‘Investors are not recognising how much of their decision making is made by their unconscious bias. They believe that they’re data driven when in fact they are also emotionally driven, and we need to recognise how much unconscious bias sits in the investment decision and treat that as part of the process.
What about the pipeline- do we believe that there are not enough diverse founders coming through?
Joyann says ‘ I was one of 800 applicants to the Black Founders Fund, and I’d assume that if I was one of the 800 with the required information, there would be another 1000 that didn’t have everything yet, so I don’t think it’s a question of pipeline. However I would say that the fact that it was an application process and also that it was not equity made it a lot more appealing as it made you feel like you had a better chance than if it had been a competitive pitch for equity’
Sado adds to this “It’s not a pipeline issue at all. We have seen a similar thing with under investment in Black led philanthropic organisations or social enterprises. And the issues came back to institutional challenges which are deeply deeply systemic. How we see individuals, how we assess risk, how we invest, all of those things are deeply embedded. What became clear in terms of google was that it was a targeted investment.
Once funders realised that, they completely shifted and were bringing out funding that specifically targeted these groups and they were getting hundreds and thousands of applications. So as Briony says. Do we continue with the same conversation, trying to fix something that’s deeply flawed, or do we think radically about the fact that there has been under investment, and if so so how do we address that with direct intervention and targeted investment”
Monika agrees ‘I also don’t think it’s a pipeline issue, and in fact, after crunching the stats for our 85 SETsquared companies, 48% of all investment went to businesses that have a woman on the founding team.
And while change is coming, it’s a slow burn…
She adds “I do think we’re seeing a difference from the investors perspective, and they’re now being more mindful of the diversity issue, actively trying to attract more women into investment teams. But I am definitely still noticing that we’re having more conversations with women led businesses than men led about alternative routes of funding such as crowdfunding, because it’s easier than going to pitch at all male panels all the time”
Briony points out “I would suggest that the last 18 months, mostly triggered by Covid, has seen some significant changes, with initiatives like the Ascension Ventures Debut Sessions and also Ada Ventures diverse scout network which is a diverse, proactive group trying to support founders in need.
However there is still a gap and it is pervasive – investor language and the fact that particularly VC investors are speaking a different language as they’ve often fought hard to raise millions, it’s going to be hard to ask them to change their expectations. So, if we can’t create a new paradigm in which people have access to a really warm and supportive environment to raise funding, then how do we give them the support they need in order to be able to speak the language and access the networks they need to unlock the funding?
Amy agrees “It’s a mixture of changing the ecosystem, which is a massive thing, and it’s going to be slow to change because despite being investors they are quite risk averse themselves. But also there is a change in that women, and diverse founders and investors are saying we’re going to do it ourselves. And I think by 2025 there’ll be more wealth in the hands of women globally and women waking up to their own power, and using things like crowdfunding and angel investing at a syndicate level, so that more wealthy people will start to use their financial power to make a shift that institutional investors will have to catch up to”
Appreciating that this is a slow burn process. If you had a magic wand to make changes immediately- what would you ask for?
There were several common points across the board:
- Calling out bias when you see it: Tackling and calling out people when they say or do things that are biassed, whether consciously or not, is critical.
- Diversity amongst investors: All think it’s important to see more diversity among investing teams as well as transparency around the make-up of these teams.
- Transparency: It would be good to see transparency around the process that an investor goes through, so that a business can see that the process is the same whoever the investor is talking to.
- Targeted funding calls – to allow people to have confidence to apply to relevant calls
- Investor Readiness: As noted above – getting companies more investor ready before they go to speak to investors so that they speak the same language to unlock the funding, and enabling them to better see any bias arising.
Briony asks for two practical catalysts that can be implemented. 1. A Microfund, which invites HNWs to put in just £1000 each into a pot, and to use this money to invest in individual founders, in a small way. 2. A founders pledge ‘where a founder pledges that when they exit from their business they will commit a certain percentage of their exit valuation or the money that they receive into planetary causes’ or in this case, reinvesting in diverse founders.
Sado adds “There is an environment for doing things radically differently, and that takes leadership because we can’t just continue to try and change a system that’s really really flawed. That will take an awfully long time. So what is the new type of investment and resource that we need to develop?
“I think having NatWest leading on that and being clear on that, while getting others on board to be able to shift and change things. The region of Bristol and the SouthWest is a region where different things happen. So we just have to push ourselves to make these changes and as a region, try to lead, and others will follow”