Black founders are being significantly underrepresented when it comes to venture capital investing in their businesses, according to research.

Just 1 per cent of founders who have raised pre-seed funding for their start-ups are Black, rising to 3% of founders who successfully raised later-stage Seed and Series A funding.

Compare this to the fact that 53% of founders who have raised either Seed or Series A are based in London, where the general population is estimated as 16% Black.

The figures are slightly better for Asian founders, who accounted for 7.3% of those raising VC funding.

Even more damningly, three-quarters of founders described themselves as coming from advantaged socioeconomic backgrounds, with hardly any founders coming from families living on income support or welfare.

The figures indicate that the world of venture capital is mostly a closed loop, which relies on personal connections. In short, it’s not what you know, it’s who you know.

“The data suggests that ethnic minority founders who are successful at raising seed capital are still often excluded at the pre-VC and VC stage of funding. Thereafter, they are subsequently underserved by institutional providers of venture capital,” the report said.

Cornerstone Partners, an angel network, which has invested just under £1m in BAME businesses across Britain, compiled the report with Engage Inclusivity, Diversity VC and Beauhurst.

The angel network has made several recommendations as to how to open up VC funding to underrepresented founders, including opening up access and promoting the work of angel investor networks that back minority businesses.

Rodney Appiah, chairman of Cornerstone Partners, called for further research, particularly in relation to the emerging pipeline from black and diverse founders.

Seb Butt, head of partnerships at Diversity VC and founder of Future VC, said: “There’s a growing awareness amongst stakeholder groups that lack of access to equity and debt capital is stifling businesses led by marginalised founders, particularly in the early stages of growth.”

The Cornerstone report comes days after the Financial Conduct Authority highlighted that between 2009 and 2019, only 38 black entrepreneurs received venture capital funding. Black women entrepreneurs received only 0.02 per cent of the total venture capital invested, said the FCA.

See also: Google’s Black Founders Fund could help plug finance gap