“Every study shows that by having a diverse group at the helm of a business, you improve the outcomes of that business,” says Priya Guha, Venture Partner at Merian Ventures.
Speaking to DIGIT last week, Guha insisted that improving diversity throughout the tech sector – from individual entrepreneurs to tech giants – is more than just a box-ticking exercise, it is a key factor in ensuring the future success of the industry and society.
“It’s become more than just ‘the right thing to do’ and people are beginning to realise that you actually get better returns as an investor as a result of addressing and improving these issues,” she says.
Earlier this year, a report published by McKinsey argued that the business case for inclusion and diversity is now stronger than ever before. Companies that make a concerted effort to cultivate an open, diverse and inclusive environment and create a welcoming culture are now more likely to outperform “less diverse peers” on profitability.
Similarly, a 2019 analysis conducted by McKinsey shows that organisations with gender-diverse executive teams were 25% more likely to have above-average profitability than less diverse industry counterparts.
Research highlighting and championing the positives of increased gender diversity can only do so much, Guha argues. In reality, investment prospects for aspiring female entrepreneurs or founder teams have been bleak for quite some time and it is a key issue that will take a long time to address.
For years now, investment for female-founded companies has been a recurring topic of discussion in the global tech sector. A report published by Tech Nation this year showed the UK is one of the best places to scale a tech company. That same report also highlighted record levels of tech sector investment in 2019, so where do women stand in all this?
Access to cash
Female entrepreneurs are being left behind during Britain’s tech sector gold rush, and it’s not because they’ve missed a wagon train west, they’ve been here all along, bootstrapping with the rest.
According to the British Business Bank, for every £1 of venture capital investment in the UK, all-female founder teams get less than one pence. However, all-male founder teams receive, on average, 89 pence.
Although the Bank’s UK VC & Female Founders report shows that VC investment in female-led startups is increasing, Guha argues that at the current rate of progress it could take decades to really crack the issue.
“There has been a slow upward trend [in VC investment]. But even at the current rate, we are still probably a decade off from reaching some sort of equity or parity of funding,” she asserts.
“But there are positives. I think there are lots of funders who are now thinking very actively about how they can be part of changing this dynamic.”
Guha worries the pandemic may be exacerbating what is already a difficult situation for female founders and entrepreneurs, as well as other marginalised or minority demographics.
“It’s an extremely challenging situation at the moment, and there’s a few issues to look at here,” she explains.
“One is that getting funding isn’t an easy process, full stop, regardless of who you are. Securing funding in the context of a very different environment with Covid, however, is also making this process even more challenging.”
Crucially, while Guha believes new remote working practices have helped to open many doors and foster greater communication in the entrepreneur community, industries that have traditionally appeared ‘closed off’ may be drifting ever further away.
She insists this has not been intentional and is simply an unfortunate by-product of the pandemic. However, in virtual times people rely on existing networks and this could be excluding marginalised groups.
“What you often find is that existing networks tend to be a relatively closed community, and so anybody who’s not from that circle is, I think, finding it much harder now,” she says.
“If my fears prove correct and the pandemic sets us back in terms of underrepresented founders gaining access to funding, the figures we’ve seen in recent years could get even worse.”
Tackling the diversity deficit
Another key issue at play within the broader context of funding for underrepresented groups is the investment scene itself, Guha says. Venture capital does suffer from a gender diversity problem and this is further compounding difficulties for women in business.
“It is clear we need to focus on how underrepresented founders have access to the same capital, but the only way you’re going to get those decisions is when you have a diversity of voices within investment committees, for example.”
Research conducted by Diversity VC shows that women account for just 27% of the venture capital labour force despite making up 47% of Britain’s overall workforce.
Similarly, women were found to be significantly underrepresented in investment teams, with just 18% holding specific investment or partner roles. Among non-investment positions, which includes marketing or legal, women account for 43% of staff.
“If you don’t have different voices – whether that’s gender, ethnicity or people from different parts of the UK even – it’s going to be hard for investment committees to be changing from the status quo,” she adds.
An important element within this debate is transparency and perception, Guha believes. Historically, VCs have been often viewed as a “closed boys club” and it is crucial that organisations – and the industry as a whole – work to change this dynamic.
Improving diversity will play a key role in tackling these issues, especially in regard to unconscious bias. Female founders are often required to overcome perceived barriers that their male counterparts simply would not have to deal with, Guha says.
With a diverse team, a ‘self-checking mechanism’ will be present when negative dynamics begin to rear their head.
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“I don’t for a second think that a male investor has a list of questions for female founders or one for a male founder, but what you do see time and time again is that unconscious bias results in women founders being asked questions that male founders would not.”
“Frequently when that is done in terms of the context of the business, that’s around defensive questions,” she adds. “So, what are the problems you’re going to encounter, what are the challenges you will face?”
For male founders, the questioning and perception often takes a different, perhaps more positive, tone. From the onset, male founders are likely to have a far different experience and it is unacceptable, Guha says.
“We can see the different dynamics this creates in an interview, discussion or any pitch context,” she says.
“So that unconscious bias awareness piece has to be a key part of the puzzle. And actually, I think that’s really where we need strong diversity of investment committees.”
Better outcomes for society
Fundamentally, this is an issue which transcends issues of ethical business and profitability; diversity and inclusion in tech have real-world implications and the potential to positively – or negatively – impact society.
If companies are not being launched with diversity in mind, and technologies not being developed with inclusion in mind, the outlook is bleak for great swathes of society.
“The outcome of this isn’t just unfortunate, it’s disastrous for many reasons because the products you end up designing are only suitable for, say, 50% of the market,” Guha says.
“It’s so important that inclusion metrics are built into the product from day one because you end up with a product that is safe for everyone, is usable by everyone and also has a much bigger market possibility because it’s targeted at a broader part of the population, not just a segment,” she says.
Priya Guha will be participating at Startup Summit 2020, set to be held on 28th & 29th October on a virtual conference platform.
To hear more from Priya and some of the issues discussed in this article, make sure to register and secure your place.