With a historically diverse group of winners at this year’s Oscars, the film industry is showing signs of change. Venture capital funding, well, not so much.
A new report found that Black and other ethnic minority founders are being excluded from access to venture capital in the U.K. and urges investors to end exclusionary practices.
The study, jointly produced by Cornerstone Partners, Engage Inclusivity, Diversity VC, and Beauhurst found Asian and Black businesses able to find venture capital investors in 2019 made up just 7.3% and 2.9% of the total respectively. Women and nonbinary founders faced even greater barriers.
Economic privilege, however, could get you places. The study found that three-quarters of founders came from advantaged socioeconomic backgrounds and a majority graduated from prestigious universities. Hardly any came from families living on welfare entitlements.
Pipeline problem
The study concludes that despite the venture capital industry claiming there is a “pipeline problem,” citing a lack of suitable businesses run by women, Black, and ethnic minority founders, there is a deeper problem within the industry’s “limited perspective.”
Cornerstone Partners, which focuses on investing in minority-led businesses, said equity investment professions must provide funding to people outside their networks and create schemes to help encourage minorities in order to break exclusionary practices.
“This reliance on social capital—be that through schooling, university, or familial connections—is a self-fulfilling prophecy: Any founder who is a part of these fairly closed networks is much more likely to be able to get investment,” said Henna Zamurd-Butt, director of Engage Inclusivity and the report’s author.
In the U.K., venture capitalist firms lack diversity, with 76% of those surveyed identifying as white, 70% as men, and 33% as having a degree from either Oxford, Cambridge, Harvard, or Stanford.
Rodney Appiah, chairman of Cornerstone Partners, said the pipeline problem in VC investment is due to “blind spots” in the system: “Given the lack of diversity in the VC profession, this approach has tended to lead to the assumption that there aren’t enough diverse founders.”
He said that early engagement with founders from all backgrounds and an open network model that enables founders to reach venture capital without a warm introduction is the way this gap can be narrowed.