Two UK-based venture capitalists weigh in on whether the investing industry has improved its diversity in Europe

PAULA GROVES   bycompany

Following the deaths of George Floyd and Breonna Taylor-and the resurgence of the Black Lives Matter movement, which inspired racial justice protests around the world-businesses across corporate America and Europe spoke out against racism and discrimination last spring.

Venture capital funds were no different. Silicon Valley behemoths, from Sequoia and Bessemer to Kleiner Perkins, tweeted about doing better on diversity. But as the anniversary of Floyd’s murder approaches, has anything really changed in the investing world?

“I think we have, absolutely, [seen change],” said Paula Groves, a general partner at the venture capital firm Impact X, which invests in underrepresented entrepreneurs across Europe. “You see a number of companies and corporations…start to allocate funding to Black entrepreneurs. … All of these corporate giants have been spurred by the momentum of the Black Lives Matter movement, and I applaud their efforts.”

Groves-who began her career on Wall Street in the 1980s, then worked in private equity before spinning out her own VC fund focused on women- and minority-led tech companies-said that regardless of what investors may say about diversity, what really matters is where they put their money.

“Getting capital in the hands of [diverse] entrepreneurs is going to be so important from a wealth creation standpoint,” she said.

Supporting Black entrepreneurs has broader implications beyond just their individual companies, Groves said. Studies show that Black entrepreneurs typically support other Black businesses, such as restaurants. They’re also more likely to employ Black people in their own companies. It’s called the virtuous circle, and leads to wealth creation, which then leads to more entrepreneurship.

Funding Black founders also makes good business sense for investors.

“Mainstream entrepreneurs are getting most of the capital, as we know, and certain deals are oversaturated,” said Groves. “When deals become oversaturated, they become overvalued. … If we can find these hidden gems, we can take advantage of a valuation arbitrage, if you will, providing capital at a lower valuation, working with businesses to grow, and creating strategic value.”

Boosting diversity from within

Andy Davis, the founder and general partner of the 10×10 fund in London, said he is optimistic about progress being made inside venture capital firms themselves.

“On the VC side of things, we’ve seen a lot more Black VCs not only get interviews but get hired,” he said. “We’re seeing more people get to the final stages of interviews and get offered funds-so the VC industry is moving, in my opinion, though it’s moving slowly.”

Davis has worked in the past with the London-based firm Atomico, which he said is making a concerted push to hire more Black investors. That said, many of the roles being offered to Black candidates are entry- or mid-level. That’s below the seniority level at which real investment decisions are made.

“There is an issue at the check-writing level,” Davis said. “We do need to progress the careers of those who are at mid-level.”

He said there are only a few Black venture capital partners in the UK, and those that exist are partners at their own funds. In other words, there are no Black partners at non-Black firms.

Davis, who began his career as a startup founder before moving into angel investing, created a network of Black British founders in 2015. A few years later, he started a similar community for Black venture capitalists and angel investors. Those efforts have culminated in the 10×10 venture capital fund, an early stage fund to invest in Black founders, announced last July and launching next quarter. It will begin with about £3 million ($4.2 million).

Europe vs. the US

So far, both Davis and Groves work primarily with British startups. In some parts of continental Europe, investing in diverse entrepreneurs is complicated by a lack of data. In France and Germany, for example, the governments do not collect racial statistics at all.

Even in the UK, a recent study by Extend Ventures-a not-for-profit for diverse entrepreneurs-found a dearth of data on diversity in venture capital.

“We must be prepared to shift the status quo significantly on race with the same determination that we’re tackling gender disparity,” wrote industry expert Patricia Hamazhee in the report. “Without data, we cannot marshal the evidence that is demanded before change can be made.”

Groves said there is a handful of European investors starting to build out the Black entrepreneurial ecosystem, and that she believes it will grow.

“I would say that the European ecosystem is probably about 20 years behind the US ecosystem,” she said, adding that that’s true of the VC space in general, not just in terms of VC diversity.

Davis agreed that American VC funds tend to have more capital-and that the US has more of a startup culture.

“In the UK we are traditionally conservative, and in the US they are a lot more open to risk and the idea of entrepreneurship,” he said.

What next?

“In the wake of Black Lives Matter and the George Floyd movement, I think other people are starting to wake up to what I believe is an opportunity-not just to right a societal wrong, but also to maximize results and bring equality,” said Groves. “I believe that economic inclusion and the economic domain is the next place for equality in our society.”

For her, the key to getting Black entrepreneurs better access to capital is to prove that investing in them makes good business sense.

“Oftentimes people feel like the solution is to get a bunch of really smart people in the room and sit down and talk about strategy, and brainstorm what’s broken and how do we address these needs, and write a report,” she said. “We’ve done that for years. We have the data, we have the information, we’ve proven the business case-so let’s start to deploy the capital.”

Impact X, which has raised money from high-net-worth individuals in the UK and US, has so far invested in more than 20 transactions. The firm has had one exit-a fintech company, which it exited at a 7x markup in valuation from its initial investment. Groves hopes to have two more exits by June.

“So we’re proving the thesis,” she said. “[We’ve got], not just the data as to why it makes sense from an academic standpoint, but now we have actual financial results that we can point to.”

When it comes to finding diverse European entrepreneurs to invest in, Davis said there are plenty to choose from. “Every month I see about 120 companies and end up investing [personally] in 0.8 percent,” he said. Of those 120 diverse startups, about 100 are founded by Black entrepreneurs. “So,” he said, “when they say there’s a pipeline problem, it’s not on the founder end.”

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CEO of Future Super: Gender equity is everyone’s business, and it isn’t a pipe dream

Kirstin Hunter Headshot
Kirstin Hunter, CEO of Future Super

There’s a lot of talk about gender inequality in Australia. The glass ceiling. Women earning 79 cents for every dollar. Men holding 67% exec roles and 71% board roles. Old ladies retiring with 47% less super than old men. 

Gender inequality means all of these things.

Despite all the column inches given to gender inequality, and the “inclusive workplace policies” purporting to address it, when we look beyond words to actions the reality is that change is moving at a glacial pace. At the rate we’re going, it will be another 202 years before gender pay equity is achieved in the Australian workforce. 

I don’t know about you, but I can’t wait that long, and neither can the members of the superannuation fund at Future Super. 

Transforming business for equality

Business leaders can and should be leading the charge for gender equality. This leadership must start with an honest and data-driven conversation within your own organization. 

The great news for business leaders is that you can do this regardless of how big or small your business is, and once you start, change can happen very quickly.

At Future Super, we began by analyzing our own gender pay data (both overall and by seniority), setting board-level targets, and sharing our progress against these targets with our team. This approach has allowed us to transform our business: in four years we’ve improved our gender representation across the team (from 30% to parity) and in the leadership team (from 20% to parity), while also reducing our gender pay gap from ~25% to within our target of +/- 5%.

But we didn’t stop there.

We also reflected on the trends in our own industry, where women retire with 47% less super than men. The reasons for this retirement gap are known: women are less likely to make the senior ranks, are more likely to take time off for caring duties, and more likely to return part-time. As a small business we may not be able to fix the system, but what can we do to make sure that our own staff don’t suffer that same fate? We introduced three policies to address these drivers of inequality. Today at Future Super, all staff earning less than $80k are paid a higher rate of superannuation, all staff taking time out of work for parental leave are paid super contributions for up to 12 months, and all staff who are working part-time due to caring responsibilities are paid super at the full time rate. 

But it’s not enough for us to think only of our own team. As a superannuation fund we must also act with our members’ retirement outcomes in mind.

Investing for gender equity

When Future Super makes investment decisions on behalf of our members we need to consider a company’s long-term economic prospects. When it comes to gender, the data has shown time and time again that diverse teams perform better. 

If diverse teams perform better, it stands to reason that teams lacking diversity will perform worse. 

What that says to me is that a business that fails to build a diverse team is a bad investment: these businesses are willing to ignore the data and leave money on the table to protect the status quo. That’s why we stopped investing in companies that have all-male boards.

Advocating for gender equality for our members

When systemic factors make it more likely that our female members will retire with less than our male members, it becomes our responsibility to challenge that system.

In the 2020 Equality is Everyone’s Business report into gender inequality, we found that one of the most effective actions that businesses can take to improve gender pay equity within their organization is to improve transparency on actions and performance on gender pay equity. Despite this also being one of the most simple actions businesses can take, our research found that more than 50% of companies in the ASX100 are still refusing to do this.

Gender equality is not just good ethics, it’s good economics. Gender equality is everyone’s business: it’s up to all business leaders to be part of the change, to promote and improve workplace gender equality. Your employees and your investors will thank you.

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