TIME TO MAKE DIVERSITY PAY

Female and ethnic minority founders still get starved of funding, notes Laurence Dodds. Broadening access is not just the right thing to do, it’s a route to riches

If you are lucky enough to win an audition for almost any modern orchestra, you may be surprised by the set-up. Typically, candidates are hidden from the jury behind a screen, and often there is even carpet to muffle the weight of their tread. This system, first adopted by the Boston Symphony Orchestra in 1952, was not a pandemic prevention method but rather an attempt to eliminate gender and racial bias. Its principles have since been adopted by the multinational law firm Clifford Chance, the BBC and the Hubble Space Telescope.

Paula Groves believes that tech needs something similar. As a founder of the London-based venture capital (VC) firm Impact X Capital and a black business leader, she has spent much of her life fighting for the 1pc: specifically, the 1pc of venture capital funding that typically goes to black founders, as well as the 1pc of funding that goes to all-women teams in the UK.

“Venture capitalists tend to invest in people that they have ‘warm introductions’ to, people they shared a locker room with, who they shared a fraternity with,” she says. “If you’re black or female you don’t get to participate in those situations because that wasn’t an opportunity that was afforded to you … it doesn’t matter who wrote the business plan.”

Even as Britain’s start-up economy has blossomed, the numbers have remained stark. The Alison Rose Review of Female Entrepreneurship, published by the British Government last year, found that female-only teams won just 4pc of venture deals by number, on top of the 1pc by weight figure.

Across Europe the situation is even worse: 2.1pc and 0.4pc respectively, according to the VC firm Atomico. Statistics for founders from black and ethnic minority groups, who make up more than 10pc of the population according to the 2011 census, are harder to come by, but estimates of f unding als o hover around 1pc.

That i s not only a problem for the founders themselves.

Juliet Rogan, who runs the high-growth start-ups division at Barclays, says that VC funding, while small in absolute terms, “has a di s proportionately large impact on the kind of future we’re going to be living in”.

That means swathes of people getting fewer products and services that solve their problems, as well as discrimination built into supposedly universal services: camera algorithms that struggle properly to capture dark faces, or health apps whose designers didn’t think to include a period tracker. Even something as ubiquitous as the mobile phone is not immune. Until recently, few manufacturers seemed to notice or care that ever-bigger handsets were becoming too large for women to hold or use comfortably.

Part of the cause is who asks for funding – and how. While Britain has no shortage of female enterprise – one in three entrepreneurs are women – research by Enders Analysis has found that they are less likely to take on debt, and request “several orders of magnitude” less money when they do. Women are also nearly twice as likely as men to believe that they will have trouble getting a loan. But the skewed demographics of VC itself also play a substantial role, given that 87pc of senior venture capitalists are men and 76pc of all venture staff are white. That makes it all the more unlikely that women and people of colour to get t he f amous “warm introduction”. Many VC firms actually require a personal referral. And, as investor and members’ club founder Debbie Woskow (No 49) has bluntly put it, “men back men”. “It’s a thousand per cent a male, pale stale world,” says Alice Enders, a former WTO economist and one of the report’s authors. “I’ve been a token woman all my life – I have a PHD in economics – but this is very extreme.”

The resulting barriers range from the stark to the subtle. The VC world had its own round of #Metoo allegations in 2018, and Sarah Turner, founder of the investors’ network Angel Academe, says too many of her female investees have had experiences when VCS treat business meetings as dates.

Meanwhile, Tugce Bulut, founder and chief executive of the British consumer research firm Streetbees (No 79), describes the stark difference in the questions that VCS ask different genders. “As a man you would get a lot more growth and upside questions – how big you can dream. Whereas as a woman you might get a lot of downside, protection-related quest i ons – what you would do if things go wrong,” says t he Turkish- born Londoner, who has raised more than £ 20m to date. “That really can suck your energy as a founder … you need to be able to recognise the pattern and walk away from it.”

Groves, who was about to move to Britain before Covid (and still plans to), also describes a persistent experience among black founders of VCS “moving the goalposts” – encouraging start-ups to come back when they had reached a certain milestone only to name another one when they did. “They don’t want to say no, but finally you wake up one day and realise they have no intention of ever saying yes,” she says.

In some cases, VCS simply don’t understand the business opportunity before them because it solves problems they have never experienced. Sheena Allen, a black Mississippian fintech founder who grew up watching her friends and family preyed on by payday lenders because they had no bank accounts, says she once got turned down by an investor who had never heard the word “unbanked” and could not understand how it was possible. An estimated 33m Americans and 1.3m Britons are in that position.

Some VCS are also confused by periods, lactation and female health (“or they feel vaguely e mb a r - rassed,” adds Enders). Take Tania Boler of Elvie, a “femtech” startup that makes silent breast pumps and pelvic floor exercisers. “She recognised fundamental issues with women’s health that weren’t being addressed, because no one had actually thought about the value that could be created through them,” says Rogan. “There have been 12 iterations of the iphone, yet the breast pump hadn’t changed in 50 years.” Encouraging solutions are already beginning to emerge. Enders notes that far more girls are taking STEM subjects at school – “thank the Lord!” – the effect of which will filter into the tech economy this decade. VCS are hiring much more diversely, though a typical climb to reach senior roles of more than five years will delay their impact.

Numerous special funding initiatives, including, but not limited to, Impact X, Angel Academe and Barclays, are spinning up, especially at big banks; Enders says the latter are a far better bet for founders than the “macho” VC industry. And although Covid-19 has caused great pain in the short term, it has also rapidly normalised home working and unorthodox hours, which could yet prove a boon to founders who are disabled, caring for children or based outside major cities. Even so, Groves warns that diversity programmes in tech too often “lump gender and race into one bucket”, letting progress on the first obscure inaction on the latter in one set of rosy statistics.

In fact the solutions can be very different: ethnic communities are often clustered together, whereas not many major cities have a Woman District. When black firms don’t get investment, they support fewer jobs in black communities and thereby starve local service businesses too.

Ultimately, the most powerful advantage may be investors’ own pecuniary instincts. According to the Rose review, female entrepreneurs could add up to £250bn to the UK economy if they started and scaled-up new businesses at the same rate as men. “Pounds, shillings and pence – that’s what investors will listen to,” says Rogan.