The Treasury Committee today criticises the venture capital
industry’s unacceptable failure to invest in firms outside London
and the South East or in businesses led by women and ethnic
minorities as it calls for rapid change from Government and the
sector.
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.
However, businesses with all-female founders received just two
per cent of all venture capital funding in 2021, while less than
two per cent went to black and ethnic minority-led businesses.
In a new report, the cross-party Committee of MPs criticises
these unacceptable diversity statistics and calls for rapid
change from Government and the industry. Improvements in
transparency and diversity data are urgently required.
The Committee highlights the importance of globally competitive
tax reliefs designed to promote investment in UK firms. Despite
previous calls from the
Committee, the Treasury has not provided clarity on when
venture capital tax reliefs with expiry dates will be extended.
The Government should extend the schemes at the earliest
opportunity to provide more certainty to founders and investors.
The Treasury should make collecting and publishing the diversity
statistics of venture capital firms and their investments a
requirement for eligibility.
The Committee also finds that venture capital investment is
unacceptably concentrated in London and the South East.
Eighty per cent of venture capital investment flows to the
“Golden Triangle” of London, Oxford and Cambridge, with London
alone receiving almost half of all equity deals despite
accounting for 19 per cent of all small businesses. Given firms
elsewhere in the UK can take longer to become established, the
maximum company age limits of seven and 10 years written into the
tax reliefs currently hold back economic growth and innovation
and should be extended.
The MPs encourage all venture capital firms to sign up to the
Women in Finance Charter and Investing in Women Code, both of
which require the publication of gender and diversity statistics.
Organisations should comply or explain why they are not as a
condition of receiving tax relief support.
The Committee also recommends the Government and British Business
Bank consult on creating a fund with the specific purpose of
promoting gender diversity in venture capital allocation.
Commenting on the report, , Chair of the Treasury
Committee, 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.”
-Ends-
Notes to editors:
- Details of the Committee’s inquiry, written evidence
submissions and oral evidence replay links and transcripts can be
found here.
