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Treasury Committee 

Oral evidence: The venture capital market, HC 134

Tuesday 31 January 2023

Ordered by the House of Commons to be published on 31 January 2023.

Watch the meeting

Members present: Harriett Baldwin (Chair); Douglas Chapman; Emma Hardy; Danny Kruger; Dame Andrea Leadsom; Anne Marie Morris.

Questions 58 - 115


I: Alexandra Daly, Co-Chair, Council for Investing in Female Entrepreneurs (CIFE); and Ladi Greenstreet, CEO, Diversity VC.


Examination of witnesses

Witnesses: Alexandra Daly and Ladi Greenstreet.

Q58            Chair: Welcome to the Treasury Committee evidence session. We are focusing particularly today on diversity in the venture capital market. Could I invite you to introduce yourselves?

Alexandra Daly: My name is Alexandra Daly. I am the founder and CEO of AA Advisors Europe Limited. We are a private placement business, raising money for private markets from institutional and family office investors. We raise money for a combination of venture capital, private equity, private credit and real estate funds. We have a 15-year track record and have raised private market money for over 72 funds to date. I have 25 years working in the financial services arena, of which 20 years have been in alternatives, raising capital.

I am also the cochair of the Council for Investing in Female Entrepreneurs, an initiative that spun out of the Alison Rose review of female entrepreneurship. The Council for Investing in Female Entrepreneurs is a steering committee backed by BEIS and is comprised of leading financial institutions that are looking at implementing the recommendations of the Rose review that urge investment funds to help their investors invest in female-led businesses. Thank you very much for having me here today.

Ladi Greenstreet: Hello, everyone. I am Ladi Greenstreet, the CEO of Diversity VC. We are a global non-profit network that exists to unlock the full potential of venture capital and entrepreneurialism so that it benefits all people. Our goal is to advance diversity, equity and inclusion across the venture capital industry and ecosystem in order to maximise returns. We are trying to make sure we get better business performance and better societal outcomes from venture capital.

Q59            Chair: We are doing an inquiry into venture capital, and one of the things that has struck us from the evidence we have received so far is that for every pound raised in venture capital only about 2p goes to women-owned and women-led firms. There are similarly poor statistics for broader ethnicity as well.

We wanted to ask you about the participants themselves. We have talked about the money invested. What about the make-up of the participants in the venture capital industry? Alexandra, how would you characterise your industry?

Alexandra Daly: I am a great advocate of the industry. I have a couple of stats that I want to share with you today, which will underpin some of my answers to you. I wanted to show just how strong the UK venture industry is.

In 2022 there were 3,900 venture capital deals in the UK. The median valuation per deal is £7.1 million and the largest individual deal was a whopping £745.2 million. There were 817 venture capital investors across Europe at the end of 2021. However, the UK remains Europes top country when it comes to both the number of local investors, which is about 191, and assets under management, which is £468 billion, according to the 2022 European Capital Report of 25 May 2022. However, you are right: 5% of total venture capital goes to all-female teams, which is, as we know, terrible.

To answer your original question, the VC industry is very innovative, entrepreneurial and progressivefar more so than any of the other private market industries we work with. The industry wants to effect a change, but they need the right tools to do that.

For that to happen, it is important for the Government to work with the British Business Bank, the Rose review and the BVCA to effect change. The Investing in Women Code is also pivotal here. That code was spun out of the Rose review. 189 organisations have signed up to it, of which 134 are from the VC community. That is a direct result of us being a community that wants to do something but needs the guidance to do it.

Q60            Chair: You are putting the impetus back on Government. Government subsidises your industry with tax breaks. Ladi, 84% of the money in this sector is going to all-male teams. What are your views on the characteristics of the industry you work in?

Ladi Greenstreet: First, this is an ecosystem. It is an ecosystem problem that this is going on. When you look at venture capital, the industry holds a significant amount of capital. Therefore, it has a significant amount of power and, therefore, a lot of responsibility.

It is really important to stress that, as an ecosystem, we all need to be doing more and making sure that we play our roles, be it Government, venture capital and all the other actors at work within the ecosystem. When it comes to looking at ourselves as venture capitalists, traditionally there was a sense of cognitive dissonance.

In 2017, Diversity VC was one of the instigators of one of the first reports looking at the data that we are talking about today within venture capital. At that point, we did not really have much transparency in terms of the internal make-up and workings of venture capital. Since then we have seen a collective change in rhetoric, vision and values for what this industry needs to look like. Certainly, for Diversity VC over 100 venture capitalists have self-selected to become a part of our community and to help move this industry forward.

I would also stress that, when you look across at Europe, the UK is probably the most active in investing in female founders across Europe.

Chair: You are saying that 2% is better than Europe.

Ladi Greenstreet: I want to answer your question. I am trying to say that there are problems within the industryboth structural problems and behavioural problems. This was certainly addressed in the Morgan Stanley report in 2019, which looked at the behaviours of the industry. Those need to be addressed, and one of the roles we do in Diversity VC is going out and addressing them. That takes time and it takes a concerted effort. In our membership, we have seen the effort and impetus to do that.

Q61            Chair: You mentioned data. Are you aware of companies in this sector holding data on their gender pay gap?

Ladi Greenstreet: Yes. Part of the Investing in Women Code is to provide that data.

Q62            Chair: What is that data showing?

Alexandra Daly: I am not sure what the data shows on the pay gap. What the Investing in Women Code also does, which is vital to our business, is give us an understanding of the need to improve and change, and to affect the various guidelines that need to be implemented to look at changing the gender pay gap.

Q63            Chair: Is the gender pay gap measured at the moment?

Alexandra Daly: I do not know whether it is. We can write to you and find out whether it is, just to be absolutely certain. I am not sure whether that is something that is part of the Investing in Women Code. It is for each of the independent financial institutions on there to provide that. Let us come back to you and provide that information.

Q64            Chair: How does the Investing in Women Code differ from the Women in Finance Charter? Is it more focused on your industry? Is it a more focused version?

Alexandra Daly: Yes, it would be more focused on the alternatives industry.

Ladi Greenstreet: I want to go back to your earlier question about the make-up of venture capital. The data that we have available is definitely showing that lots more needs to be done. As an industry, we understand that, as venture capitalists, we are predominantly based in London and the south-east; 80% of VCs are based in London.

BBB data from 2021 looked at the fact that people tend to invest on a pretty local basis; 82% of investors invested within two miles’ drive and 61% invested within one mile’s drive. There is a locality aspect today, which I am sure we are going to talk about later.

Chair: Yes, we will have questions on that later.

Ladi Greenstreet: When Diversity VC produced its own data, one of our first reports looked at the cross-section of demographic data in venture capital; 76% of VC professionals identified themselves as white and less than 3% identified themselves as black.

These are just two things that I also want to talk about. When we talk about demographic data, we are bucketing the demographics quite broadly. The lived experiencewhat we want to get to is cognitive diversityis much richer than that, but we do not have that data at the moment.

One of our key drives is to make sure the diversity and inclusion of investors is ever-changing because we know that is one of the structural reforms we can make.

Q65            Chair: You mentioned that there seems to be a lack of data. You are going to share with us if there is further data. It is very hard to measure improvements in things if you do not have the data. You also mentioned that compared to Europe we are better, with 2% going into female-led businesses. How do we compare with the US? Do you have information on that?

Ladi Greenstreet: Just to correct that, I did not say that we are necessarily doing better. I just said that, on one particular stat, in terms of the amount of activity that is investing in women, we are seeing a lot more activity in the last few years.

Chair: I am sorry. I thought you were looking at that through a—

Ladi Greenstreet: If I compare us to the US, we have done some similar reports in the US. In our report, 77% identified as white and then less than 1% are black. Again, I go back to the idea of structural reform. We need more diversity in the investors and decisionmakers in venture capital in order to try to make the change. We understand that naturally there is a mirrortocracy—that is sometimes what it has been called. People will invest in people if they look like them and if they understand their shared experience. That is one of the natural biases that exists in all industries. That can be overcome through structural reforms, which we can talk about later.

One of the key structural reforms is changing the diverse and inclusive make-up of the VC industry. That is one of the key things we do, which is why we have a programme called the Future VC programme, where we provide career development and career opportunities for the under-represented people who do not currently have access to venture capital.

Q66            Dame Andrea Leadsom: Good morning. Ladi, your organisation has put out data showing that women hold only 20% of investment roles in VC firms and 83% of investment committees have no members who are women. Is that why there is so little investment in female-led businesses by VC firms? Is it as simple as that?

Ladi Greenstreet: I would go back to my point that this is an ecosystem problem.

Dame Andrea Leadsom: What do you mean by “an ecosystem problem”?

Ladi Greenstreet: The overall entrepreneurship journey goes from having an idea—this could be any one of us in this room or anyone in the country—to being able to turn that idea into a profitable business over a period of time. Traditionally, venture capital acts at the point when the idea already has a bit of maturitya little bit of maturity if it is a C stage or a bit more maturity at series A or series B stage.

Dame Andrea Leadsom: Yes, understood.

Ladi Greenstreet: If you look at how people tend to get started, the very first investments tend to be friends and family investments, business angels or accelerator programmes, if done locally. If we just looked at venture capital, we would only be looking at the juncture of trying to turn a small fledgling business into a global behemoth. That is the aim of all of us here today: to see how the UK can create these global, world-beating businesses. If we have an ecosystem that nurtures talent at an early stage, and provides access to knowledge networks and capital at an early stage, more people will be able to get their ideas off the ground in the first place.

However, going to your question, we are here today to talk about venture capital. We recognise that, at the point when a female entrepreneur has her idea off the ground and needs to raise some institutional money—that is what venture capital is—to develop her idea and become a bigger company, hiring more or building up the product and so on, there are structural biases that need to change.

One of the key things is the homogenous nature of the venture capital industry. If the majority of the investment committee are men, as you call out, naturally there is a set of human biases that come into play. There is a mirrortocracy that happens. Sometimes it is not really understanding

Q67            Dame Andrea Leadsom: Yes, I am sorry; that is a given. We know that 83% of people on investment committees are men. We all know that is, therefore, likely to mean that their biases will come out because 83% of them are men. I am asking whether that is the reason why women are not getting more venture capital for their firms. What can be done about it? That is where you specialise, is it not?

Ladi Greenstreet: Yes. Part of the solution is making sure we have diversity in investment teams, yes.

Q68            Dame Andrea Leadsom: How can that happen? How can we get more diversity into those teams?

Ladi Greenstreet: One of the areas is hiring. One of the key pillars of our organisation is to look at hiring and recruitment. We have to make sure we get more women attracted into the industry, and retained and advanced within the industry to make sure they reach those positions.

Q69            Dame Andrea Leadsom: How are you doing that? How are you influencing investment committees to take on more women?

Ladi Greenstreet: Like I saywe go back to this pointquite a lot of it is structural. These organisations tend to be quite small. The average size is nine people. A lot of the time they do not have the internal practice and policies that need to be in place, as you would expect in much larger institutions. For instance, if you are hiring, do you make sure that 50% of the people on your shortlist are women? Those are things in policy and practice that are not typically—

Q70            Dame Andrea Leadsom: Are you influencing that? Is that something that is under way?

Ladi Greenstreet: Yes. We have what we call the Diversity VC standard, which is a framework to help look at the institutional and systemic biases that exist in venture capital. We work with funds through that framework, and assess them on how they are doing and what actions they are taking to remove these existing systemic biases.

Q71            Dame Andrea Leadsom: Are you making progress? Are investment committees interested in greater diversity?

Ladi Greenstreet: Yes. One of the key things, as Alexandra said, is that the rhetoric and values of industry definitely want to change. After the release of these reports, people were asking us how best they could do that. That is why we created the Diversity VC standard, which is our framework to do that. All of the 100 or so members of our community have self-selected to do that work.

Q72            Dame Andrea Leadsom: What is your time horizon? How quickly do you want to see that figure of 83% male change?

Ladi Greenstreet: As quickly as possible, really.

Dame Andrea Leadsom: You do not have, “This percentage by this date, that percentage by that date.”

Ladi Greenstreet: The first thing we wanted to do was to make sure people had the ability to change. We recognise that change happens for different organisations at different paces, but we wanted at least to provide accountability for those that want to change and a best-in-class practice to help them do that.

Q73            Dame Andrea Leadsom: Will you be reporting on progress, then? If you are not setting targets, will you create transparency?

Ladi Greenstreet: One of the key things we do is use the data more broadly to look at how our community does compared to the broader population. However, we only started the Diversity VC standard framework at the end of 2020.

We have not yet acquired the data to say how well these firms are doing, but we can show that change is happening. After having signed up to the Diversity VC standard, people are taking the action to change. It is so much more important that people are taking steps to remove the systemic barriers than necessarily looking at the end metrics and saying, “We have one woman on our investment committee; therefore, everything is solved”.

Q74            Dame Andrea Leadsom: Is it your intention to report on progress?

Ladi Greenstreet: Our full intention is to report on progress across the industry, as we have always done. We are a data-led organisation, and we have always been focused on that.

Q75            Dame Andrea Leadsom: How frequently will you be reporting?

Ladi Greenstreet: We are launching our next UK report this year. The plan is to do that next report. That will look at broader data as opposed to data from within our community. The end visionto go back to our mission—is to show that, when you do embed inclusivity into your investments, you get better business outcomes and better societal outcomes. We definitely want to show that.

Q76            Dame Andrea Leadsom: You say you are going to be reporting more broadly rather than on your community. Can you define more broadly and then can you define your community?

Ladi Greenstreet: This would involve things like the data we are looking at today in terms of the 84% of male investment teams and so on. We are looking at how the industry more broadly has moved as opposed to just our community.

Dame Andrea Leadsom: You mean the VC industry.

Ladi Greenstreet: Yes, the VC industry in the UK.

Q77            Dame Andrea Leadsom: What is your community?

Ladi Greenstreet: It is the people who have signed up to the Diversity VC standard. There are VCs, and then we have our community, much like the Investing in Women Code. Some of the names you will see on there have taken the next step to join the Diversity VC community and help remove systemic barriers to investment.

Q78            Dame Andrea Leadsom: Presumably, you would expect to see your communitythe people who have opted to sign up to your targetsimproving faster than the broader VC sector.

Ladi Greenstreet: Based on the data in the Investing in Women Code, they are showing better data than the sector generally. The BVCA report shows that they have improved in terms of female diversity from 30% a couple of years ago to 38%. There is an element, we have to admit, of selection bias. The willing are taking those actions.

The real question is about how we get the broader venture capital ecosystem, the most important firms and those with the most amount of capital, to adopt these standards and make sure they report on data. Essentially, we are asking Government to help us move that agenda along.

Q79            Dame Andrea Leadsom: Alexandra, to what extent is the under-representation of women a function of the few women in financial services more generally?

Alexandra Daly: It is a huge function. Personally, I became part of this to change this really big imbalance. To come back to one of your original questions about the lack of females on the investment committee side, the council is putting together and highlighting all the women investors that we do know right across alternatives to show that there are women out there, that they are role models and that they can mentor.

One thing that definitely comes across when we speak to people—we speak to groups; we speak to young women—is the lack of understanding about how to become an investor and what that means. There is a lot of education around this piece. There is no doubt about it: if we could drive change and get more women investors to be part of not just VC but all elements of the financial services industry, it would absolutely help the state of play and indeed help female entrepreneurship in the UK.

Q80            Dame Andrea Leadsom: What is the interplay between supply and demand? Is it that there are hardly any women on VC committees and therefore there are no women going to VC committees to seek capital? Is it that there are very few women seeking VC and therefore there is very little interest from women in being on these committees? Which way round is it?

Alexandra Daly: Honestly, you cannot really separate it. It is a mixture of both. The alternatives community is pretty opaque. For any entrepreneur, let alone a female entrepreneur, it is very difficult to understand how to access it. At the Council for Investing in Female Entrepreneurship, we are trying to lift this veil.

One of our great incentives is the Invest in Women Hub. This is a BEIS-backed platform. It is on the web. It is everything you need to know about investing but were too afraid to ask. It is going to have everything from the difference between debt and equity to information on what a venture capital fund is. When you speak to people and you say, “Do you know what a VC fund is?” most people go, “No, I have no idea”. Let us show them what a VC fund does and, more importantly, what angel investing does.

The hub will have links to angel investors, geographically dispersed venture capital funds and we will say what these venture capital funds invest in and, more importantly, what they do not invest in. It will also have the flexibility to show how to put together a pitch.

Even with seasoned general partners, we often look at presentations and think, “This is goppingly dreadful”. You can literally put together very much an A to Z of what should be in a presentation. We think that is fundamentally importantto get the right building blocks in order for females to be able to understand how to access private market capital.

Q81            Dame Andrea Leadsom: With that, which sounds excellent, are you monitoring progress? Are you monitoring impact?

Alexandra Daly: Absolutely, yes. We have already discussed a lot about this today. It is all about the metrics; it is all about being able to understand the impact that is created. It is only then that you can really see how growth is driven. For certain, we are going to be doing that.

We are also—it is very important—going to be networking. We are going to be showing the need for networking. The institutions that are supporting the Council for Investing in Female Entrepreneurs are coming together collegiately, sharing their networks, sharing the events they are putting on up and down the country with regard to growth businesses, and really helping in a collegiate manner.

This council is very much becoming a platform for financial institutions to come together and assist. Remember that a real issue here is that everybody works in silos; nobody really comes together properly. If we can come together effectively, this will absolutely minimise the issues we have here.

Q82            Dame Andrea Leadsom: Can I just ask both of you a final question, please? Is there any evidence of active discrimination either in investment committee hiring or in investment decisions against women-led businesses or businesses led by people from different ethnic backgrounds?

Ladi Greenstreet: Can you define “active discrimination”?

Q83            Dame Andrea Leadsom: I mean deliberately going, “I prefer my mate. He is a bloke. I am going to have him”.

Ladi Greenstreet: I would put that back to whether it is conscious or unconscious. In this industry, like in others, there is unconscious bias and there is conscious bias. I would not say it is deliberate, but a feature of venture capital is that it is a very network-driven industry. A lot of the time, especially in an economic climate with a tech downturn, people resort to wanting to feel safe in the investments they are making.

There is evidence from the Morgan Stanley report on the subject we are talking about. Women and ethnic minorities are seen as riskier investments. That is evidence that is there. However, a lot of that can be overcome if you put in good structural reforms within your business to make sure your own individual biases do not come out. It is then really important to think about how you make sure, within an investment committee, one person in the room is not using their bias to influence other people and bias their opinions as well.

I would not say it is active discrimination. I would say there is conscious and unconscious bias. Some of that is to do with risk propensity. Unfortunately, that bias exists. We need more awareness of the facts. We need more awareness of the fact that, if you do invest in women, women return you double the money for the same amount of capital invested. This is the sort of awareness piece that needs to be out there.

Q84            Dame Andrea Leadsom: Women are in fact lower risk, are they not?

Ladi Greenstreet: They are lower risk, so the bias is generally not true. Like I say, it is a quite a homogenous industry that needs improvement on diversity. Just going back to one of the earlier points, we have seen more women entering the industry. The BVCA report says it is now 38% compared to 30% two years ago. Most of those women are entering in junior positions. We really need to make sure those women advance to the more senior positions.

Additionally, we need to see women launching their own funds to solve for that gap. A lot of what we are talking about today is capital allocation, but there are so many other features of the industry, in terms of knowledge and your network, that are really important to provide women. It is not just about capital; it is also about support in understanding how to go about the business.

There are funds being set up and offshoot funds to support that, but the problem is that they have very little firepower. A European Women in VC report suggested that UK women have access to only 5% of the total firepower available. We need to make sure we are supporting those female GPs who are setting up their funds, and the females within GPs, to make sure they have the most amount of firepower.

We would also ask Government to help them with support from the BBB and British Patient Capital. It is difficult to support them right now because the Equality Act makes it difficult to support them directly. They are playing a very important role to solve for not just capital and knowledge but also the network.

Dame Andrea Leadsom: Do you have anything to add, Alexandra?

Alexandra Daly: Ladi has done fantastically.

Q85            Douglas Chapman: Good morning. I want to start off by going back to the Rose review, which originally said that if women started and scaled up new business at the same rate as men, something like £250 billion of new value could be added to the UK economy.

This is the £250 billion question: how can we ensure that more female-founded firms get access to capital across all levels of investment, right from state funding to scale-up and then on to further growth?

Alexandra Daly: Yes, it is a great question. There are a lot of moving parts here. First, we need to dispel the myth that women are not interested in business; they are extremely interested in business. They just need the right tools in their toolbox to be able to get that capital in.

I have a stat here. Women launch businesses with 53% less capital on average than men, are less aware of the funding options available and are less likely to take debt. Platforms like the Invest in Women Hub are really important to show what can be done, to give women the building blocks to access private market capital, and to understand the difference between taking on debt or equity.

Q86            Douglas Chapman: Does the access to venture capital funding remain constant through that lifecycle of seeking funding and scaling up?

Alexandra Daly: No.

Douglas Chapman: How does it change?

Alexandra Daly: It depends. We also want to highlight the differences here because this is very confusing. Different VCGPsventure capital general partnerswill look at different stages of a companys investment life cycle. You will get different funds that will look at seed, early-stage and start-up, and then you will get other venture funds that will look at early-stage growth. It is not one-size-fits-all.

The hub will make it very clear where in your lifecycle, as a female entrepreneur, you should go and which venture fund is best suited to you not only from a sector perspective but also from a funding perspective, given where you are in your growth. That is the first thing that needs to happen.

We also need to develop an understanding of what investor networks are available. Looking at the angel networks, we could look at the great work that the Rose review has done, along with Jenny Tooth, on the Women Backing Women campaign. It is very clear that women like to invest, but a lot of people do not know about the angel investment programmes up and down the length and breadth of the country. That is another link we would make very much apparent.

When we think about venture and looking at what venture funds can do, in order to make sure they are looking at their underlying portfolio companies and the identification by ICs of correct portfolio companies, the Council for Investing in Female Entrepreneurs put together some best practice guidelines. That sits on the BVCA website, and was written for investors by investors. It is basically a document that helps investment managers make sure that, when they looking at companies to allocate capital to, they are doing it with an agenda and an inclusive lens. That is also a toolkit that can be utilised.

Q87            Douglas Chapman: I know Danny is going to ask some questions about regional policy as well, but, for example, I am a Scottish MP, and I know Par Equity in Edinburgh are very active in the market. If you speak to Michael Moore, for example, he will say that, if you really want to access serious money, companies that are based in Scotland or smaller companies at the moment really have to come through to London to get access to that capital.

If we are really serious about levelling up and we have the potential to grow the economy by £250 billion, this is not just about Scotland but Wales, northern England and so on. Is that message getting through loud and clear? Is there an opportunity to develop an ecosystem more regionally that supports new businesses?

Alexandra Daly: There is. Another thing that the Government could do to help this situation and help private market money get allocated to businesses would be to help the origination of funds that will look at allocating money directlyfemale-focused funds. The Council for Investing in Female Entrepreneurs is looking at launching an equity growth fund and a venture fund, which will be totally geographically diverse. If we have more funds doing that, it will help the dispersion of allocation geographically.

When we think about institutional money, which is what you alluded to beforehand, the trouble is that institutional money tends to favour large funds. If we look at fundraising for VCs, a fund 3 for a VC that is looking at allocating to growth businesses or high-growth businesses is going to be targeting an AUM of about £250 million to £300 million. The cheque sizes they are putting to work can be anything from £7 million to £10 million.

Investors like to put money to work in big funds with big AUMs. Right now, a lot of the venture industry have small AUMs, particularly the female-focused ones. What is needed is the adoption and origination of larger funds that are able to allocate larger ticket sizes to businesses. This is where you can harness institutional money to make that happen, because institutions really want to put to work £10 million or £20 million. That is very difficult when you have a fund with an AUM of £50 million.

Ladi Greenstreet: If I may add to that, Alexandra talked about business angels. I believe 86% of business angels are male. When I talk about the ecosystem and the different elements of funding throughout the journey, business angels play an important part in giving that early access to funding before even the venture capital comes to the table and presents funding.

The business angel network is something we need to look at to make sure more female angels are investing. We also need to make sure that, for those business angels who are investing—many invest their own money and work alongside the BBB—we are recording the data on what they invest in.

Coming back to what I said before about the fact this is an ecosystem, we also need to think about local ecosystems when we think about levelling up and so on. Although London holds 80% of the VCs and 43% of deals are done in London, that is at a stage when you are starting to move up into the next level of growing a business. At the earlier stage, we need to make sure we have regional hubs that are supporting local talent and entrepreneurship and giving them this first access to knowledge, network and capital.

I would imagine the British Business Bank could play a huge role in supporting those local ecosystems with regional funds and working with universities to try to nurture that talent and provide early access to knowledge, capital and networks.

Alexandra Daly: Another thing to look at is public pension plan money with local authorities. There are 88 local pension funds in England and Wales. They represent one of the UKs largest defined benefit segments, with assets of about £276 billion as of April 2021.

It will be very interesting to think about how pension plans, particularly the pooled pension plans, can look at assisting in allocating capital to funds that will probably benefit businesses in their own area.

Q88            Douglas Chapman: I suppose I could ask the same question about under-represented ethnic minorities. Do we have any data? When we are talking about ethnic minorities, that is a huge swathe of society. Is there any evidence or data we can look at that suggests that one ethnic community is more successful in this area than others?

Ladi Greenstreet: We talked about fact that most money goes to men and less money goes to women. From an ethnic diversity point of view, the UKs black and minority ethnic communities comprise 14% of the population, yet all-ethnic teams receive 1.7% of venture capital. That is across all stages. That is from a report by Extend Ventures between 2009 and 2019.

In 10 years, 1.7% of funding went to allethnic minority teams, yet, if you look at the MSDUK report from 2021, ethnic minority entrepreneurs contribute £74 billion to the UK. Just last year, the Labour start-up review looked at whether, as a rough estimate, £15 billion to £20 billion extra in our GDP could be achieved if we brought parity to ethnic minorities receiving funding.

I will delve a bit deeper, because these facts are probably the same facts you have in front of you. Just 0.24% of venture capital in the UK went to black entrepreneurs between 2009 and 2019. Again, this is according to Extend Ventures. We also need to consider that most funding was allocated in London. Whilst black communities represent 3.5% of the UK, within London that is more like 14%. Those different demographics are also underfunded; 0.02% of funding went to black females in these 10 years. To put that into context, between 2009 and 2019, 38 black entrepreneurs were funded, of which 10 were black women.

This is an issue that we are trying to solve. Like I said, a lot of it comes down to removing structural biases as well as individual biases. A lot more needs to be done. It does not just fall on venture capital because there are other systemic issues in the economy. When you look at the black experience within the UK and how many of the black community have a mortgage or are able to access friends and families, which typically is the first cheque, there is a lot to be done across the whole ecosystem.

It is not just about what happens when they reach out to venture capital, although we recognise that we exist to make sure that, when they do reach out to venture capital for funding, there are no biases owing to their identity that are barriers to them receiving funding.

Q89            Douglas Chapman: Moving on from some of the comments Andrea made earlier when you were talking about targets and the frameworks you had in place to encourage diversity, should the Government be a lot bolder in saying, for example, that some tax reliefs may be more linked to diversity targets? That would act as a driver to make venture capital companies look at the actual impact and outcomes of their investment policies.

Ladi Greenstreet: As a recommendation, particularly as the Government are an allocator of capital themselves, the Government should be taking a lead. As an LP in many funds through British Patient Capital and as an allocator of capital through the EIS and SEIS schemes, inclusivity should be embedded within finance. We know that because we know we can maximise our returns through that.

Q90            Douglas Chapman: Is “embedded” the same as “measured”?

Ladi Greenstreet: Yes, it should be something that is measured. We are gathering data through our own research purposes. I believe the Government should understand how public money is being spent through these schemes and how it is being allocated when it comes to inclusivity.

Alexandra Daly: If I may, another thing to think about is institutional capital, the bigger cheques, and how Government can harness those big cheques. UK institutions want to do something. They want to allocate money; they want vehicles.

With the work we have done in originating these two funds, I know the growth equity fund is looking at being £650 million in AUM, and the VC fund is targeting £150 million to £200 million. We have been absolutely astounded by the wealth of support that we have received from an LP perspectivean investment perspectivefrom UK institutions.

It would be really interesting to think about how the British Business Bank and British Patient Capital could also harness this external GP support. They have all the necessary requirements from an investment management perspective to have the right purview on making allocations correctly. Perhaps they need to work with other institutions that want to put capital to work.

Right now there is not a breadth of VCs, for instance, that are able to allocate capital in this way. Maybe they could look at working with British Patient Capital as a way for them to be able to pump money into private markets effectively. That was just a thought.

Ladi Greenstreet: It is about leading by example. If the limited partners of these funds were making sure they reported on inclusivity targets, the funds would naturally comply because they need that money. Vast swathes of capital within the venture capital ecosystem would be focused on inclusivity.

Q91            Douglas Chapman: My own constituency was No. 10 in terms of the number of female business start-ups a few years ago. Edinburgh was No. 1 in that same review. The Rose review progress report revealed that the number of female-based start-ups had been adversely affected during the pandemic.

We now have an even more serious situation, I would suggest, in terms of the issues around the cost of doing business that a lot of new companies face. Has any data been collected on the impact of the pandemic on new start-ups and the availability of funding? What is the outcome of that?

Alexandra Daly: Yes, there is. In actual fact, I can share some very interesting work with you. I can write to you about that. Many members of the council in their respective institutions have put together really interesting thought pieces on their clients and how their clients have been affected in the pandemic.

The International Monetary Fund has warned that the covid-19 pandemic threatens to put females, from a cost base, back 30 years of economic gain, if something is not done to assist them. One of the big issues that has come up, particularly with some of the reports we have seen, has been the childcare situation and the fact that businesses that female entrepreneurs have been focused on have definitely also been really affected by the pandemic.

Suffice to say that conversations like these are vital not only to enhance female entrepreneurs and their advancement from a cost base but also to stop the huge decline that covid-19 has caused in female-led businesses.

Q92            Danny Kruger: It is very interesting. This might be a cliché or an urban myth, but my understanding is that the big bang in the 1980s broke open the old boys’ club of the City to a degree and introduced into financial services, and banking particularly, people who could not get in before. That is largely around class.

Before we go on to continue the discussion around sex and ethnicity, are you able to tell us to what degree the British financial services sector is still very class-bound? Have things changed over the last generation or two on that front? Is it the case, as the cliché suggests, that we now have more working-class white men working in the City than before? Is that fair to say?

Alexandra Daly: With the global financial crisis, I am not necessarily sure whether class was an issue. One of the things that is vital when we think about all these issues is to think about education and grassroots. We all understand that what we are talking about here is not something that is going to happen overnight; it is a generational change.

I do not know the state of play, from the UK financial services perspective, on white working-class men and how many white working-class men work in financial services in London at this time.

Q93            Danny Kruger: On today’s topic in terms of the destination of VC funding, is that analysed at all?

Ladi Greenstreet: Yes. We did a report in 2019 that looked at privilege. We found that one in five VCs came from just four universities: Oxford, Cambridge, Harvard or Stanford. One of the elements we talk about is the privilege it takes to be in this industry. This is something we see over in the US as well. When you start to add whether they have come from those universities or business schools, one in three come from those.

I cannot speak about the broader financial services sector, but, when it comes to looking at where venture professionals typically come from, 20% come from consulting. In the same report we found that 18% come from general finance and 12% from investment banking. We found that just 8% came from start-ups and 4% came from tech. This was in 2019.

We have to appreciate that these are typically quite small funds in terms of size. Nine people work in the average fund. Their investment period is typically 10 years. When we talk about changing the make-up of the ecosystem, there is naturally a bit of homophily, like in all industries. When you start, you hire people who come from your networks. You build a fund, and then you build a bigger fund and so on.

We have got to this stage because that is where the industry emerged from, but there is still work that can be done. Even if there are many professionals who come from those backgrounds, change can be made, certainly at the bottom but also throughout. We can make structural changes, institutional changes and systemic changes to make sure those individuals do not bias the way investments are made. That is what is really important.

Q94            Danny Kruger: How do you distinguish between a positive network effect and a bias? How do we get the benefits, which you must acknowledge, of networking and relationships, and avoid the downsides of prejudice? How do you make that distinction?

Ladi Greenstreet: There are four parts of our framework: HR and recruitment policy, internal culture, deal flow sourcing and portfolio management.

Within deal flow sourcing, which we are talking about when it comes to network effects, one of the facts I can pull out—again, this is from a Morgan Stanley or Harvard study—is that you are 13 times more likely to get invested in if you get a warm introduction. There are also quotes from the same study that say, “If people are not smart enough to get a warm introduction, they do not deserve to be invested in”. That is the biased thinking: that they need a warm introduction.

Q95            Danny Kruger: Is a warm introduction not a proxy for the trust that is needed for a good investment?

Ladi Greenstreet: Yes, exactly, but let us think about who has the networks to be able to get that trust. We need to help people develop those networks, and that is why it is integrally important that, across different geographies and different demographics, people understand how to get their foot in to get those networks in the first place. That is all about education and training as well.

Q96            Danny Kruger: So the objective is not to reduce the human in the system or to reduce everything to an algorithm with everything being completely blind.

Ladi Greenstreet: No, not at all.

Danny Kruger: It is to widen access to the network.

Ladi Greenstreet: Yes, exactly. It is to show that the person receiving that is going through a process to address their own biases: “This person does not look like me. I do not understand them”.

Danny Kruger: Yes. “Nevertheless, I can trust them and build a relationship”.

Ladi Greenstreet: Yes, exactly. One of the things is having a deal-screening process that is methodical enough to try to eliminate bias where we know it can exist. If I can take a typical example, we might have a particular set of questions that we typically ask. If multiple individuals look at the same investment deck at different times, that is very different from multiple people looking at it at the same time, where bias can creep in. It is about the process you use to evaluate companiesmaking sure it is rigorous enough and has the right pieces in place so it removes bias where we know it can crop up.

Q97            Danny Kruger: Just going back to the question Douglas was raising around investment according to place and the geographic inequities this country has to such a terrible degree, you mentioned the British Business Bank and the opportunity for regional hubs.

This certainly goes beyond VC, but what are the opportunities for pretty profound structural reforms in the way we operate banking in this country, to ensure that we have a real tier of regional lenders, as they do in other countries? I am particularly thinking of Germany. Does the financial sector have to be so concentrated in London or can we move to a more German model? Would that help with these diversity questions?

Alexandra Daly: It probably would. The banking community has to make some changes over the next few years, particularly in how they look at their private wealth management clients. I have an interesting stat that is important to this conversation. It is about intergenerational wealth transfer. In the next years, £30 trillion is going to be transferred, of which in the UK there will be £830 billion. It is estimated that 60% of Britains wealth will be in female hands by 2025.

We are not going to say that all those ladies are going to be in London. Banks are thinking about what to do from a regional perspectivehow to cater for this massive change in intergenerational wealth. We know that women back women. We know that women like to invest in start-up companies. We know that from a variety of different platform providers, such as Seedrs. A large percentage of their retail investor capital comes from women.

It would be interesting to think about how the various hubs and banks across the country can help in their own local areas, particularly when they are going to have to be advising private wealth management groups on how to allocate capital outside of your typical bonds and equities. This is something the banking community does not just want to do because it is the right thing to do from a deal flow perspective; it has to do this because of the change in intergenerational wealth.

Q98            Danny Kruger: Yes, absolutely. That is fascinating, thank you. Ladi, in response to Douglas you were making a point about the value of reporting on EDI investments in VC. Are you suggesting that Government schemes, whether through Government capital or tax relief, should be dependent on EDI targets?

Ladi Greenstreet: No, I am not saying it should be dependent. I am saying that reporting should be a requirement of receiving that.

Danny Kruger: That will induce the behaviour change.

Ladi Greenstreet: Yes. There is a significant amount of power in reporting. Simply measuring the problem creates momentum for change. If you are making sure the people who are allocating capital through the EIS and SEIS schemes are reporting on how diverse their investments are, it creates behavioural change. It is important.

Q99            Danny Kruger: This is my last question. I am going to put two questions into one; I am worried about time. I just wanted to ask you to expand on two things you said because I did not hear enough. What do you mean by “cognitive diversity”? What is the problem and the opportunity? You also mentioned the Equality Act. You suggested it was inhibiting some of the changes you want to see. Is that right?

Ladi Greenstreet: If I can take the second one first, there are certain funds that have been set up—I would invite Alexandra to speak on this—purely to fill the gap that exists because vast swathes of institutional capital are not providing the knowledge capital and networks to under-represented founders.

Typically, if they are setting up a fund, they would look to the British Business Bank or British Patient Capital to be an anchor investor in that first fund. They may start a fund with £15 million or £20 million. Unfortunately, owing to the Equality Act, the British Business Bank and British Patient Capital cannot invest in a fund that purely caters to one demographic, as I understand it.

Alexandra Daly: That is correct, yes.

Ladi Greenstreet: The people who are out there trying to fill the gap are not able to do so with that backing. That is my first point.

Alexandra Daly: If I might interject, the FCA also prefers that we discuss funding gaps as opposed to looking at having opportunities that are just catering to one sector, so I think there is a way of narration.

Ladi Greenstreet: Yes. Of course we encourage inclusivity and diversity. On the flipside, if there is public money going into support funds without the requirement, to your last question, at least to measure the amount of diversity and inclusivity created, that in itself seems somewhat disingenuous or a bit of a problem. We are not actually driving change where it is most needed.

Q100       Danny Kruger: What do you mean bycognitive diversity”?

Ladi Greenstreet: We have talked a lot about demographic diversity: how people generally look and where they come from. There is also cognitive diversity, which more talks about the lived experience that people have or the way they feel, act or behave. We may have similar experiences but look very different. That is essentially what it is.

Although there is an overlap between cognitive diversity and demographic diversity, it is also really important that we really want people who think differently and who have different perspectives and so therefore make better decisions. That is what the data is telling us: people who have different perspectives make better decisions. We need different perspectives.

Danny Kruger: Yes, it is not just superficial.

Ladi Greenstreet: It is about the surface-level data. You could have men and women in the same room who have all gone to the same university, but that does not move this needle forward. When we talk about diversity, we need to realise that we are just taking the surface level. What we really want to do is have people with different experiences.

Q101       Emma Hardy: Good morning. It has been really interesting. Thank you, both. Are the Government doing enough to promote diversity in venture capital?

Alexandra Daly: This is a fantastic opportunity for the Government to do more. The Rose review has really outlined the barriers that female entrepreneurs face. It has also come up with an effective guideline to minimise these barriers. Now is the perfect time to do it. From a private market perspective, there has never been a better time to invest. The UK economy is burgeoning with entrepreneurs, and there are fantastic opportunities to make money.

When we look at the stats that the Rose review found originally, £250 billion could be added to the UK economy if women in the UK matched men in starting and scaling up businesses. What is not to love? Come on. We keep it very easy here: access to and awareness of funding is the No. 1 thing. That is what we really need here.

We already have a blueprint for that. The Investing in Women Code has 189 signatories, of which 134 are VC. The starting point is right there. All these institutions can do more. They are already on the bus; they are already on the journey. Let us see what more they can do.

When we think about how to lift the veil, it is the Invest in Women Hub. Straightaway, we have a blueprint right there. It immediately says, “If you want to start a business or scale a business, these are the building blocks you need. Here is your toolkit”. It is right there. When we think about making sure venture capital firms are allocating capital with a diverse and inclusive lens, you have the guidelines that sit on the BBC website telling them how to do that.

What we really need is a big marketing campaign. We need the Government to work with groups like our council. We are networked. We are representing UK financial institutions. They have already said they want to affect change; they just do not know how to.

The Government already have the perfect recipe to turn this into an absolute success. It is working with the Rose review, the council, the BVCA, the angel groups, British Patient Capital and the BBB, and marketing the UK to UK institutions.

Ladi Greenstreet: We need to ask a question about whether the Government are doing enough with venture capital more broadly. Just setting the context here in terms of what we are trying to achieve, we want the UK to be to be germinating some of the world-beating technology companies of the future. We have all heard the well-worn phrase, “Talent is evenly distributed but opportunity is not”, and we agree that the UK is home to some of the best and most diverse talent, which is unique.

We have the power at our disposal to build these world-beating companies, but we need to be unlocking that opportunity within the ecosystem. To build that talent and to get to the next stage, we need to be giving them knowledge, networks and capital.

More broadly, I question whether we have set a big enough vision or ambition within UK venture capital for what we want to achieve. Are we using everything at our disposal? I am sorry to go on about this, but we are at an incredible juncture in our time. In terms of knowledge and capital, we do not need a lot to start a new business. With the advent of ChatGPT, every 12-year-old in the country can create an app to do their homework on a weekend. Right now we are worried about whether they are going to be cheating on their exams, but it provides the opportunity for every single one of them to become entrepreneurial and start to create world-beating companies. The question is how we support them and provide them the opportunity.

No top-10 FTSE company has been built or scaled in the UK in the last 20 years. That is not good enough, given the amount of talent we have. It is a stark contrast with the US. We must say that we have two of the worlds leading 15 privately held companies in the UK, Revolut and Checkout.com. Diversity is one of the strengths that will make us world-beating when it comes to the confluence of different cultures and people within this country. It is about time that we set the ambition and supported those in the ecosystem that are trying to do that.

My recommendation is to be bold, to put that vision together, to convene venture capital, to convene the LPs who invest in venture capital, and to set an ambition to grow the amount of investment going into companies in this country, with inclusivity being at the heart of it.

Q102       Emma Hardy: I have been listening to the evidence from you both this morning. In terms of what specifically the Government can do, am I right in thinking that one of the things you are saying is that we need a big marketing campaign? One of the recommendations from the BVCA was to allocate funding towards a targeted programme of activities and campaigns to increase awareness. That would be a tangible thing the Government could do to make people aware.

Ladi, from listening to what you are saying, am I right in thinking that you want to look at collecting data on diversity? This comes back to the idea that we measure what we care about and we care about what we measure. Is that one of the things the Government could do? In a way, we are giving them Government money through tax breaks. Should we look at diversity and enforce measurement? Is that correct?

Ladi Greenstreet: It is the bare minimum. It should be something that we do with public money as general prudence. In terms of recommendations, similar to the Investing in Women Code, there should be an ethnicity code that we set up. That is one of the recommendations.

It is also important that we try to use Government to convene the limited partners that invest in these VCs. They are the ones who ultimately drive change because they make sure the GPs are accountable. These LPs—this includes the Government, which is a big LP—need to be driving firms to adopt these codes.

Q103       Emma Hardy: Would you want these codes to be mandated?

Ladi Greenstreet: Mandating is the wrong approach in this case. Like Alexandra said, we need a campaign about why this is important. We need to show that we, as a Government, with public money, are leading by example in terms of how you use data and then what you are expecting of the funds you invest in. That is leadership, in my opinion.

The biggest point I was trying to make in terms of what can be done is to build a new UK inclusivity scheme to increase institutional patient capital. In other sessions like this, we have talked about removing the pension charge cap. We definitely agree with that, but, more than that, it is about how we convene institutional investors and venture capital, how we generate more capital allocation into venture capital, and how we make sure those we are convening agree that inclusivity is a core part of what will make this most successful.

I point to the Tibi scheme set up in France with Europe. Macron put out the ambition that Europe wants 10 100 billion companies to be set up by 2030. That is the sort of ambition we should be trying to go for while also talking about the fact that we, as a country and a community, are inclusive and care about inclusivity. As all the data shows, it gets better financial outcomes.

Emma Hardy: It is winwin.

Ladi Greenstreet: That is what we should be doing. We should be taking leadership.

Alexandra Daly: We do some international analysis. A couple of the best countries, in terms of how they go about helping their entrepreneurs with a gender and inclusive lens, are in the Scandinavian region. There is Innovation Norway. There is the Swedish Venture Initiative, which is a large fund of funds. It is not so dissimilar to our own British Patient Capital, but they have more of a churn to allocating money to entrepreneurs and to fund managers. When we look back, in 2019 British Patient Capital allocated to 10 funds. That can be really ramped up.

The Australian Venture Capital Fund of Funds does the thing we are talking about. They really harnessed a marketing campaign, speaking to their own superannuation funds and their own investors in order to participate in their own economy. I can send the Committee more information about this, but we should look at those three countriesNorway, Sweden and Australia—as best practice. They have all put what we are saying in place and it has really worked.

Q104       Emma Hardy: One of the other bits of evidence we had from we are radikl said that another tangible thing the Government could do would be to extend the SEIS deadline from two years to three years. Would that be another thing that would support more women being involved? It was a recommendation for how to increase the number of women investors.

There was another thing I was going to ask you about. The way the Government interacts with the venture capital market is via the British Business Bank. Could that be where there is a greater focus on diversity? That is a direct way the Government are interacting.

Alexandra Daly: The British Business Bank does a great job in speaking to the VCs. The BVCA is also a great conduit to enter into the venture capital community. The work we have done at the council at the Rose review level has also attracted huge VC support.

If you think about it, how many venture funds are there in the UK? I think it was 191. They are touchable and they are open. As I said right at the beginning, from a private market perspective, by their nature VCs are very innovative. They are incredibly entrepreneurial because that is the part of the funding journey they hit. They would absolutely love to have more interaction with Government, but the BVCA and the BBB are definitely the two pillars you have open to you.

Q105       Emma Hardy: Finally, to both of you, if you could choose one priority for Government for how to improve diversity, what would it be? What would be the one thing you would want Government to do to improve the situation from now?

Alexandra Daly: It is always going to be funding; it is always going to be the assistance of funding and harnessing the institutions we have to work with, say, the British Business Bank or to look at helping to launch other funds. Funding is the main thing.

Q106       Emma Hardy: What about a priority for Government in supporting more women to be invested in? What would that be? Would it still be funding?

Alexandra Daly: I am sorry. From what perspective do you mean priority”?

Emma Hardy: I am sorry; I should have been clearer. What would be the priority for Government in terms of getting more women invested in as entrepreneurs?

Alexandra Daly: The priority there is really the opaqueness. It is lifting the veil; it is transparency; it is information. It is working with the Rose review and in particular what BEIS set out with the Invest in Women Hub. It is shocking to think that this is pretty much the only platform that is going to exist that looks at what funding is in one place, and gives networking opportunities and so on. Helping us on making the market transparent would definitely be the priority.

Q107       Emma Hardy: What would be your priority for increasing diversity?

Ladi Greenstreet: As I have mentioned a few times, inclusivity embedded in finance as a concept needs to be pushed through the various channels. Like I said, ambition is a big one. Alexandra mentioned funding. Creating a significant amount of funding that goes into venture capital, and making inclusivity a core part of that, would be the key agenda I would recommend.

You touched on the British Business Bank as well. I would agree with Alexandra that it is a fantastic institution. The way it is working with British Patient Capital, SEIS and EIS is extremely innovative. It is doing a fantastic job. There could be some ways to make it more effective in the allocation of funding. We have touched on a few of them here today in terms of localities and matched funding for certain initiatives with universities or even diversity areas.

It is about funding, but it comes down to funding with intent to make sure inclusivity is embedded within that finance.

Q108       Chair: I just want to clarify this ask on funding. Are you saying that the Government should be investing more of taxpayers’ money in venture capital?

Ladi Greenstreet: There are two parts of that question. The first part is to say, with the pension charge cap, there should be allocation from direct contribution pension plans into venture capital.

I was actually saying that, if you look at the Tibi scheme in France, they have made a cost-neutral way of generating more funding into venture capital by consolidating institutional investors from the world into the UK.

Chair: Is that what you are saying, Alexandra?

Alexandra Daly: Yes.

Q109       Chair: You want taxpayers’ money invested into venture capital.

Alexandra Daly: No, I am saying that I look at it from the institutional investor side. I would like to see more money from our public pension plans being—

Chair: I just wanted to clarify that point.

Ladi Greenstreet: If we are investing money into the SEIS and EIS funds, they should be investing with inclusivity in mind. Inclusivity should be at the heart of them.

Chair: You would write that into the tax rules.

Ladi Greenstreet: My recommendation is to make sure it is at least reported in terms of how that money is being spent.

Chair: You would write that into the tax rules, would you, Alexandra?

Alexandra Daly: I would need to have a ponder and think about that one.

Q110       Anne Marie Morris: It is lovely to see you. Thank you very much for joining us. This is a very important issue. While we have spent quite a bit of time talking about the whole diversity challenge, at this point I would like to step back a bit and look at where the venture capital market as a whole is, into which we then fit the diversity issues we have talked about.

2022 was clearly a difficult year. Right at the start, Ladi and Alexandra, you were very upbeat about how good things had been. Looked at it in the round—venture capital was not alone in this—it was a difficult year. It was a bit bumpy, and towards the end it got a bit better. How would you characterise the reasoning as to why the venture capital market had, not on its own, a difficult year? Are we talking purely about macroeconomic factors? Are we talking about industry-specific factors?

Douglas raised the issues of the covid pandemic and the cost of living. It would be useful to have a picture that we can then fit the diversity issue into. What is it that has caused those challenges in venture capital in 2022? Alexandra, you are busy scribbling so I am going to turn to you first.

Alexandra Daly: I am busy scribbling because I love this question. This is something we wanted to talk to the Committee about. Yes, you are right: it has been a difficult time for venture capital. It has been a difficult time for all private markets because of the denominator effect. You will all be aware of the gilt slide and what that has done to the investor basethe LP baseof general partners.

My business has definitely seen that. When we speak to institutional investors, they are now overweight on the private markets because of the exposure they have had from the liquid side. That means, when they think about allocating capital, they are not going to double down on their position because they are already overexposed. That means general partners are not going to be able to get the limited partnership money they need to grow their businesses. That is the first part when we think about general partners looking at gaining capital themselves.

When we think about portfolio construction and what, from a return perspective, they have been able to give on their preexisting funds—these are the investments they are making and that they are harnessing now—it has also been a difficult time because of the pandemic. However, when you invest at the bottom of the market, things can only go up. I would argue that this is a great time to invest.

I would also argue that, from a UK-centric perspective, particularly where women are concerned, we are very innovative. There are lots of fantastic businesses out there to invest in. They will definitely give great returns and are in great sectors.

When we think about limited partners investing with GPs, another positive is that they look at sustainability and impact. They have larger pools of capital to put towards those two overriding sectors. If venture funds are able to prove they are allocating capital with the right D&I focus, in actual fact institutional investors will really like that. That will help them potentially allocate capital.

Of course, the capital is going to be less because of the denominator effect, but it will absolutely be a tick in the box. At investor committee level, our managers are now being asked, “How do you invest responsibly?” This is now becoming more than a tick-box exercise. They want to know. There is a change.

It has been a difficult time not just in the UK but globally. We have a very good investment horizon; we are best placed to be able to navigate these issues. There is headwind for certainnot just here in the UK but globally.

Q111       Anne Marie Morris: Ladi, you talked quite powerfully in answer to Andrea’s question about the ecosystem. You explained how it went from the idea through to venture capital, and so on and so forth. Has VC been particularly or peculiarly affected by the headwinds and what has happened in 2022? I mean the legacy of covid, what has happened in terms of peace in Ukraine and indeed other things. I seem to see an increasing trend of de-globalisation because of all those pressures. How do you see all that impacting venture capital specifically? Are there other pressures I have not identified that are impacting what is happening in the sector?

Ladi Greenstreet: You have identified them quite well. To add to what Alexandra was saying, the other thing is the fact that venture capital operates in the public market, which is about taking something from idea to exit, which would be an IPO. That valuation is driven by the public markets.

When you have change in the public markets, that naturally affects, particularly in terms of where you sit on the venture capital sliding scale, the valuation of your portfolio company. If a company is going to go public next year and you had a set number in your head, that number will have definitely changed. That has knock-on effects in terms of your portfolio and how the company you have invested in is going to operate.

That is one of the key things that is driving a lot of what we see in the newspapers now in terms of the technology companies we are working with and how they have had to reformat themselves in this new economic environment. I am not sure I have a comment on the rest of the headwinds at this point in time.

Alexandra Daly: I would just add one more point that I hope might be salient. When we think about the liquid marketshedge funds, stocks, shares, bonds, gilts and all those types of things that you can invest inyou are looking at a return on capital of anything between 2.5% and 4.5%. If we think about the returns to investors from VC, you have a longer duration or lock-up period, but you are looking at returns in excess of 11% to 15%.

You might have to wait longer for your money, but I would call it wealth preservation as opposed to getting a quick return that might only be 4.9% or it might be a negativity because of the turmoil we have seen in the liquid financial markets in the last few months.

Q112       Anne Marie Morris: In response to a different question, Ladi, which was more in relation to the opportunities for female businesses, you said that the Americans were ahead of the game and you said something similar about the French. What is it—I am talking about the big picture on venture capital, not just what they do for women or different ethnic groupings—the Americans are doing differently that has given them, as I think you have articulated, a particular advantage?

Ladi Greenstreet: Pension funds in the US contribute 65% of the capital in the VC market. In Europe it is 18%. In the UK it is just 12%. They have a lot more capital being invested into this industry. This gap penalises the start-ups that want investment and it penalises UK savings. As Alexandra was mentioning, the returns on this asset class are above typically what you get elsewhere. That is why I mentioned in passing—I mentioned it in passing mainly because I know it has been mentioned other times before—that the pension cap charge is something we would definitely agree with changing.

I have a stat here. Assets in UK pension schemes are expected to exceed £1 trillion by 2029. Diverting just 55% of that to venture capital fund would equate to a £50 billion boost for start-ups. According to the British Business Bank, it would appropriately balance risk while protecting retirement savings. Data shows that retirement savings for the average 22-year-old could be increased by as much as 7% to 12%. The average 45-year-old could see an increase of 6% to 7%, if we took the same approach as the Americans.

Q113       Anne Marie Morris: That is very helpful. Can I go to the other end of this picture? We have touched a little bit on the issue of the difference in the different regions of the United Kingdom. Again, this is about the big picture on venture capital and less to do with diversity issues.

Right at the start you did paint the picture that a lot of venture capital work currently was in London and the south-east. That ties in with the economic strength of those particular parts of this country, but, clearly, ideas come from different people in different parts of the country. You have talked about how we need to create these hubs so that, in a way, we do not have this real focus just on the south-east. That is about what we might do differently. Let me just ask you to justify whether we should be doing something differently.

If you look at what happened in 2022 and the impact of covid, economic meltdown and so on, has any work been done to assess the differential impact across the country, given we are where we are on VC? Is that a difficult question because most of it is in the south-east? That is probably where most of the data is, and you probably do not have the data in other parts of the country.

Alexandra Daly: I really like how you are thinking. What you are asking is really interesting. First of all, let me pick it apart. On the hub situation, hubs already exist. KPMG, Lloyds and NatWest, for instance, already have hubs up and down the country. They welcome entrepreneurs to come and share their ideas and get help. VCs know about this. VCs might be over-concentrated in London, but they can connect into all of these hubs in order to get deal flow. Regionally, we all know, sadly, that there is more of a concentration in London and the south. In time, I do hope that will change. From a deal flow perspective, I know hubs already exist on the ground.

How have regional VCs been impacted? The data is not yet there. All I can see is the returns, looking at the LP money coming in and what we are hearing. I do not know from a regional perspective whether there has been any disparity between, say, Scotland and London with regards to where a VC sits.

I am taking a stab: I would not have thought so. It is really less about where a VC is physically positioned and more what their portfolio construction is and where their deal flow is coming from. You can sit in London, but you can be getting deal flow from Scotland or indeed Wales and allocating capital there.

Q114       Anne Marie Morris: If we look forward, 2023 is hopefully a year of great opportunity. Certainly, both of you have painted a picture of the art of the possible. What is possible is clearly going to be impacted by ongoing uncertainty in where we are going to be in terms of the macroeconomic picture we find ourselves operating in. There also seem to be some interesting changes in where, potentially, the opportunities are.

In terms of the time of investing, it would appear that there seems to be more interest now in investing earlier. Are there other trends like that that we need to be aware of and take advantage of? How would we take advantage of them to make sure we get that benefit?

Alexandra Daly: Most portfolio managers would say that this is a very exciting time to invest because of where we are. It has been the perfect storm with the war in Ukraine, energy and covid. It must be very hard being a politician right now, let alone somebody in business.

Insertion for deal flow and when you do a deal is perfect for now. There are also so many businesses that need funding right now. That is a great reason and shows that the venture industry has a huge investable landscape. That is also a very good opportunity that sitting here today affords us.

Another major point is that the UK economy and the UK framework is always going to be a place to invest. It is very hard when you think about other areas, maybe emerging market areas, that are always going to have that underlying constrain with regard to their economy and the difficulties those businesses may have. The UK is a very strong place to do business, and it is always going to attract interest. We should not forget that.

Your last question was looking at other areas. Were those areas outside of venture? We are seeing tremendous amounts of opportunity in the real estate sectors. As we know, there are huge plans for development up and down the country. That is something our managers are looking at. Overseas investors are also looking at that, knowing that they would like to invest in the UK and that there is much change from an infrastructural perspective. We are seeing a fair degree of attraction from international money into the UK.

Ladi Greenstreet: It is hard for me to separate inclusivity from the broader conversation we are having. As mentioned before, given where we are, we can start to write some new legislation and set out our own ambition for what we want to be as a country. That is a big opportunity to say what we are, where we sit in the globe, the connections we have and the talent we have in the country. Ultimately, that is our biggest opportunity.

All the stats that we have shown and talked about today suggest that we are still not making the most of the talent that exists within the country. Our opportunity is to set out a stand and say that, as the UK, we have an incredible array of talent and we are setting up practices that are going to make sure that talent has the opportunity to succeed in business and in all walks of life, particularly within venture capital, if they have access to the knowledge, capital and networks to thrive, and therefore we can grow the next £100 billion or $100 billion company.

That is really where I sit. We have that opportunity now.

Q115       Anne Marie Morris: Alexandra, are there any particular opportunities presented by the nature of the businesses that women or ethnic groups tend to set up and start? We have not really talked about the different industry sectors and whether, if you are a women or a different ethnic grouping, there may be some sectors where you have greater strength and there is more opportunity. Are there aspects of businesses that women start up or that people from different ethnic backgrounds set up that we need to be conscious of so that we can specifically target how we help those particular groups?

Alexandra Daly: I have just been having a chat with Ladi about this. Femtech is a great one right there. Due to the nature of the technology, the women who have started up business on the technology side are good at being able to network and let people know what they are doing. Femtech is a key sector that continues to thrive in the UK today and drives many young businesses being set up in the technology industries that are run by women.

That particular ecosystem of women is very good at being able to network effectively. Interestingly, they have some great mentors around those ecosystems. They have been very good at going into schools and speaking to universities, looking at accelerating girls going into the STEM subjects. That is a win straight there.

Ladi Greenstreet: Female entrepreneurs are over-indexed within life sciences and biotech. The stats look better there.

I would say a couple of things to that comment. First, it can sometimes be a bit of an oversimplification to say that there are certain groups that have certain types of companies. That can create bias in itself, which we have found can be quite harmful, but I understand your point: there are opportunities that are unseen and untapped.

It goes back to the need to have a diversity of investors who understand the lived experience of someone else and who can spot the opportunity. One of the biases is a lack of understanding or imagination to evaluate a business because someone has not lived an experience. I have seen it at first hand, unfortunately, in the corporate venture capital world. I have seen all-male committees talking about a femtech solution as being niche because they have not experienced it. That boggles one’s mind when you think that it is 50% of the population that it is catering to, but, to a man who has not experienced those problems, it seems a bit niche.

This is where demographic diversity and cognitive diversity are really important in teams around the country, not just venture capital but in all teams. That diversity enables us to understand the broader sets of opportunities that come our way. That is how you solve for that problem. I cannot point to one or two things here; it is very important that we improve the make-up of investment teams so they are able to spot these things going forward.

Chair: I have one last question to Alexandra. You mentioned the Rose review a number of times in your evidence. Thank you for your involvement with that. We are putting together a panel next week of the chief executives of the high street banks. We have invited Alison Rose to represent NatWest, but she is the only person who we have not been able to secure at this point, although I hope to persuade her later. It would mean that we would end up with an all-male panel. Could I ask you, Alexandra, to try also to persuade Alison Rose to join our panel next week?

Alexandra Daly: Of course I will. I will give her a call.

Chair: Both of you have been extremely helpful and very full on with your evidence. We have really valued your time.