The Treasury Committee has criticised the venture capital industry for failing to invest in businesses outside London and the south-east, and in companies led by women and ethnic minorities, saying it demonstrates a “shocking dereliction of duty”.
Venture capital plays a crucial role in supporting early-stage companies with high growth potential. However, in 2021, only 2 per cent of venture capital funding went to businesses founded by women, and less than 2 per cent to black and ethnic minority-led businesses.
Meanwhile 80 per cent of venture capital investment goes to the “Golden Triangle” of London, Oxford and Cambridge. London receives almost half of all equity deals, despite accounting for just 19 per cent of small businesses.
“In the 21st century, it shouldn’t come as a surprise to investors that women and those from ethnic minority backgrounds can start successful businesses,” said Harriett Baldwin, chair of the Treasury Committee.
“Given public funds play a key role in the success of the UK’s venture capital sector, more must be done.”
As firms in parts of the UK outside of the Golden Triangle can take longer to become established, the report recommends that the maximum company age limits for tax relief should be extended, to encourage more regional investment.
For greater accountability, the committee proposes making the collection and publication of diversity statistics a requirement for venture capital firms’ eligibility.
She called on the Government to force firms applying for tax reliefs to “reveal their diversity data”. “Government incentives could also be tweaked to encourage more regional venture capital investment,” she added.
All venture capital firms are encouraged to adopt the Women in Finance Charter and the Investing in Women Code, ensuring transparency in data on gender and diversity within companies.
MPs called on the Government to extend tax reliefs which are currently limited to companies that are less under seven or 10 years old. The move is holding back economic growth and innovation, the MPs warned.