The Treasury Committee has criticised the venture capital industry’s “unacceptable failure” to invest in firms outside of London and the South East or those headed up by women and ethnic minorities.
The Treasury Committee, in a report, has called on the government and the sector to implement “rapid change”.
“Venture capital is a form of investment in early-stage companies, typically in return for a share of the business. It is a risky but crucial form of investment for innovative companies with high growth potential.
“The sector receives government support through tax reliefs designed to encourage investment in the UK” the Treasury Committee said.
Still, firms with all female founders received only 2% of all venture capital funding in 2021 and even less was given to black and ethnic minority-led businesses.
The cross-party Committee of MPs called out these diversity statistics and added “improvements in transparency and diversity data are urgently required”.
Around 80% of venture capital investment flows to the ‘Golden Triangle’ of London, Oxford and Cambridge. The capital of the UK receives almost half of all equity deals despite accounting for 19% of all small businesses.
The Committee called on the Treasury to publish the diversity statistics of venture capital firms.
The MPs urged all venture capital firms to sign up to the Women in Financial Charter and Investing in Women Code, both of which require the publication of gender and diversity statistics.
Additionally, the Committee urged the government and British Business Bank to consult on creating a fund with the specific purpose of promoting gender diversity in venture capital allocation.
The Committee also took issue with the Treasury not providing clarity on when venture capital tax reliefs with expiry dates will be extended, even though it has made previous calls for this.
It said: “The government should extend the schemes at the earliest opportunity to provide more certainty to founders and investors.”
Treasury Committee chair Harriett Baldwin said: “The venture capital industry plays a vital role in supporting the growth of the nation’s small businesses, but statistics which show just two pence in every pound of investment goes to all-women led businesses demonstrate a shocking dereliction of duty given the level of Government support for the industry through tax reliefs.
“In the twenty-first century, it shouldn’t come as a surprise to investors that women and those from ethnic minority backgrounds can start successful businesses. Given public funds play a key role in the success of the UK’s venture capital sector, more must be done.
“Firms must be compelled to reveal their diversity data when applying to these tax reliefs in an effort to increase transparency and drive change. Government incentives could also be tweaked to encourage more regional venture capital investment.
“As a Committee, we will continue to keep a close eye on these important topics and will be investigating small business finance and sexism in the City in two new inquiries launched recently.”
