Future Fund loans showcase the lack of diversity in VC and start-ups

As 13 men devised the Future Fund Loans during the coronavirus, diversity has been left behind by the Government loan for businesses.

As part of the Government’s COVID-19 relief programme, chancellor Rishi Sunak has announced a relief package for businesses totalling over a billion pounds. With data showing that the majority of the start-ups that will benefit being founded by white men in London, female and minority ethnic founders are being left in the dark during the coronavirus outbreak.

What “Future Funds” is

The package is divided into two pots: a £500m loan scheme for start-ups, called “Future Fund”, in which investment will be divided evenly between the Treasury and private investors, and £750m of “targeted support” for small and medium-sized companies focused on R&D.

To be eligible for the “Future Fund”, businesses must have raised at least £250,000 from private third-party investors in the last five years. On top of that, Eligible businesses will be able to access loans between £125,000 and £5m, which must be matched by a private investor. Entrepreneurs from groups less likely to receive funding – women and those from ethnic minority backgrounds, will find it much harder to access support from the scheme, as it is much harder to match investments. In fact, a report last year by the British Business Bank found that only 1% of VC funding went to start-ups founded solely by women.

Its impact on gender equality

A recent study done by Diversity VC, an organisation founded to help improve diversity in the VC industry, has found that women make up 20%t of VCs in the UK, while 38% of firms have no women on their teams. The same study found that women in venture often have a higher level of education than men – in senior investment positions, women hold an average of 1.5 degrees, compared to 1.3 for men. When, and when it comes to junior positions, 8% hold PhDs or similar, compared to one per cent of men. In total, 27% of all VC employees are women, only 18% of all investment professionals are women, showcasing the stark under-representation in the industry.

The reliance on private investment to access the Future Funds loan means that female founders will find it extremely difficult to gain access to the scheme, as there is a severe lack of representation within the industry. Multiple female entrepreneurs and investors have spoken out about the lack of diversity in the scheme, such as Dana Dennis-Smith, CEO of Obelisk Support, who said when speaking with The Times: “The message [from the Future Fund] is that female entrepreneurs are not worth saving.”

Obelisk, which posted sales of about £3.5m last year and a small profit, has not raised external finance. This means Denis-Smith cannot tap the Future Fund because it is open only to companies that have raised £250,000 or more in the past five years.

How female founders respond

When speaking with other female founders, it was felt that the Future Funds loan is simply funding “the old boys club”. The sentiment of being left in the dark is echoed by other female investors and entrepreneurs; as many have written an open letter to the chancellor Rishi Sunak. In the letter, 50 investors and entrepreneurs urge the chancellor to set an “aspirational target” for backing diverse founders via the Future Fund.

The letter says: “We have serious concerns that the funding could exacerbate the existing inequalities and lack of representation in the technology sector and across wider society.”

According to The Alison Rose Review of Female Entrepreneurship, female founders are outnumbered two to one by their male counterparts, yet still, receive a disproportional fraction of investments.

How it affects the BAME community

In the open letter, diversity is addressed not just in gender, but in regards to ethnicity, too. It is not only female founders being excluded by the Future Funds programme – but the BAME community, also. A study from The Department for Business, Energy and Industrial Strategy (DBEIS) found that just 5% of the UK’s small and medium-sized businesses are ethnic minority-led, with 90% being led by their white counterparts.

The VC industry, too, lacks representation and diversity when it comes to ethnicity. According to Diversity VC, 76% of the UK VC industry is white, compared to 59% of the London population as this is where a vast majority of funds are based.

Much like with female founders, the lack of representation within the VC industry means that start-ups founded by ethnic minorities will find it much harder to access private investment, stopping their access to the Future Funds loan.

The coronavirus epidemic has disproportionally affected the BAME community in the UK in multiple ways.

While around 40% of all NHS doctors come from an ethnic minority background, 70% of the front-line workers who have died due to COVID-19 complications and 34% of those who have needed critical care due to the virus have been from a BAME background.

Those of ethnic minority are not only disproportionally affected by actively fighting the coronavirus, but the government’s efforts to provide help during the crisis inadvertently excludes these communities, too.

The coronavirus epidemic has impacted diversity in many different ways, but the Future Funds programme introduced by the government lends itself to be a platform where founders and businessmen who already have the funding and investments of their peers can succeed. Female and ethnic minority founders who were never granted the same opportunities have been left by the government to fend for themselves.

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