Diversity in Startups: A Review

What a year. The startup space is booming. Despite the looming threat of a hard Brexit, 2017 has been another record breaking year for new businesses and the UK remains the Mecca of the European startup scene. According to London & Partners, the £3bn worth of investment received from venture capital firms, a sum that four times greater than Germany, has ensured the UK and London remain the places to be if you are looking to start a new enterprise.

Although there is a clear upward trajectory in UK startup investment, diversity remains a challenge within the world of venture capital. One such facet of this, is the difficulty in raising funds for female-founded businesses in particular. A 2018 Techcrunch into diversity in investments in Silicon Valley, reported that only 18% of all funding raised at seed level found its way to startups with at least one female founder. As a proportion of all investment received, this figure drops to 9%.

This figure of 9% remains constant in the UK scene, with only £358.4m worth of funding going to female-founded startups, compared to £3.6bn for their male counterparts. Unsurprisingly, this study conducted by The Entrepreneurs’ Network and Beauhurst, found that women generally find raising capital extremely difficult. A 2015 report by Wayra, which interviewed individuals from 220 tech startups, further emphasises this claim, reporting that men are 59% more likely to receive VC funding compared to women.

Despite the challenges faced by women, there is far more encouraging news regarding the participation of ethnic minorities in startups. The Wayra findings shows that the proportion of ethnic minorities in tech startups is actually outpacing the proportion of the UK’s population ethnic minorities, at 21% vs 13%. Furthermore, the report found that UK startups were far more ethnically diverse as compared to their FTSE 100 counterparts and as such were four times more likely to see a person of BAME origin in the C-Suite than in one of the country’s blue-chip organisation.

London ….
From a geographic perspective, London unsurprisingly remains the hub for tech startups. Of the aforementioned £3bn in VC investment received by UK firms, a massive £2.45bn was directed towards London-based firms: a number nearly three and a half times greater than the total funding given to German startups in 2017.
In addition to being a centre for innovation and excellence, London continues to be a champion for diversity within the thriving UK tech landscape. According to the most recent government census, 40% of residents consider themselves non-white and the city is home to 59% of the UK’s black population. London truly is a cultural melting pot. The results of this heterogeneity is leading to an increase in BAME and female participation across the world of technology.
Startups within Artificial Intelligence show the most encouragement, with a third of all founders in the space being from a BAME background. In fact, two of the biggest receivers of funding, Babylon Health (£47.56m) and Callsign (£26.92m) are founded by BAME entrepreneurs. With over 4200 new startups being set up in London in 2017 alone, this trend may very well continue.

…. and the Rest

London however is not the only the location for startup activity. According to an April 2018 report conducted by the accounting firm RMS, the South-East of England region saw 1,296 new startups in 2017, a 40% increase on 2016, while the North-West was the UK’s third busiest region for technology business launches, with 707 new firms, a 29% up on the previous year. Including London, the UK has seen a huge 60% increase in number of tech startups between 2016-17. This suggests that there is confidence yet in the economy in spite of concerns of a No-Deal exit, as well as the plentiful availability of investment capital to startups.

Age is But a Number
Another oft-ignored facet of diversity is age. Research done by MIT shatters the concept of the child-genius-turned-billionaire startup entrepreneur. The young entrepreneurs, like Mark Zuckerberg and Steve Job appear to be a rarity. In an era where life is lived with increasing impetuousness, it is encouraging to see experience, knowledge and wisdom continue to flourish in the volatile world of the tech startup.

According to the report, the average age of the US tech entrepreneurs was 42 years old and as high as 45 for the founders of high-growth organisations. Furthermore, the Kauffman Foundation has found that “the average and median age of US-born tech founders is 39, with twice as many over 50 than under 25”. Additionally, the UK entrepreneurial outlook suggests an even older average of 47 years for, again offering solace to those looking to make their big break. The simple message is: there’s still time left.

Changing of Attitudes

For these changes to have a long lasting impact, it is essential that a change in perception pertaining to diversity are required. Investors, colleagues of women and minorities and hiring managers are all the influencers that need to spearhead the movement and therefore must see value in a more progressive approach. This certainly appears to be the case according to the already mentioned study by Wayra, which found that 82.5% of respondents agree that diversity helps teams bring new thinking and that 97.1% of individuals are open to working in diverse teams.
This change also extends to women in startups. A report by Silicon Valley Bank found that though only 38% of the 1045 startup participants in their study said they have programmes in place to increase number of women in leadership, 59% of startups have at least one woman in C-level role and 34% at boardroom level. Though these numbers do not suggest that the fight for gender quality is over, they do provide encouraging reading.

Moreover, schemes and organisations that seek to promote diversity in the tech industry as a whole have a crucial role to play when it comes to a more open hiring policy. The likes of The Centre for Research in Ethnic Minority Entrepreneurship (CREME), Colorintech, as well as initiatives such as PwC’s Tech She Can, the Tech Talent Charter and a JP Morgan-led drive to increase female participation in technology are all viable examples of this push for inclusivity.
These examples are not without reason. Despite only constituting 13% of the UK population, ethnic minority students make up 20% of the UK’s student population, of which 48.6% studied Science, Engineering and Technology-related subjects. This proves that both talent and appetite is there from the BAME community to pursue careers in technology. All that remains now is for them to be given the opportunity.

Benefits of Diversity
You may ask “But why pursue diversity at all? How does it benefit the corporate sector and the tech employee?” Well, not only does it provide for a fairer and more even battleground for women and minorities to compete with their more advantaged peers, it also allows for a richness of new ideas and perspectives that would otherwise be lost. Different perceptions will inevitably lead to new ways to skin the old cat: something that businesses are now beginning to see the value of.

This viewpoint is supported by research conducted by McKinsey and Co in 2014 and again in 2017. They found that businesses with the most ethnically diverse executive teams were “35% and 33% respectively, more likely to outperform their peers on profitability”.

In addition to this, a report from data analysis firm Pivigo found that “businesses with three to four directors, of which two or more are non-UK nationals, received an average of £13.8 million in funding, compared to £3.5 million average raised by companies with UK-only directors”. As more and more organisations take note of such findings, the likelier it is that the issues with diversity become a problem of the past.

Perhaps due to the innovative and progressive nature of a tech startup, it is therefore fitting that that the tech entrepreneurialism is a leader in the drive for diversity. The real question now must turn to diversity within the tech industry as a whole. The shocking statistic that only 4% of FTSE 100 tech employees are from a BAME background or the continued underrepresentation of girls studying technology subjects at school and university, suggests that there is still plenty of work to be done before parity is reached. In the truly globalised world of the 21st Century, where merit and not preconception is king, it will hopefully only be a matter of when and not if that a meaningful level of diversity is achieved.

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Q1 2018 global diversity investment report: Investing trends in female founders


https://www.svb.com/trends-insights/reports/startup-outlook/startups-enter-2018-with-confidence-about-innovation-economy/2018-startup-outlook-uk-report/