According to 2023 data from European Women in VC, the financial performance of European VC funds increases with higher representation of women in senior management teams. VC funds managed by mixed teams also show a higher annual internal rate of return (IRR). Management teams mostly composed of women outperform men-only teams by 9.3 percentage points.
Initiatives like the Investing in Women Code are tackling an urgent problem. Despite the compelling logic for investing in more diverse founders, the 2019 British Business Bank study “UK VC and Female Founders” reported that 89p in every £1 invested went to all-male teams. Entrepreneurs with disabilities were 400 times less likely to receive VC funding. In 2022, funding for Black founders fell by 45%.
Inclusive strategies lead to better returns. According to a Kauffman Fellows 2020 report, founders with greater diversity in terms of gender and ethnicity achieve 30% higher returns for investors upon exit than their white male counterparts. Having diverse investors at the VC level leads to funding more diverse teams and founders. But while VC firm Code signatories have to provide data on the companies in which they invest, there is no similar requirement for the investors in venture capital funds, known as “limited partners” (LPs). LPs include pension funds, university endowments, government-backed funds like the British Business Bank and private investors (such as family offices). Venture capital funds—and therefore LPs—are responsible for funding seven of the ten most valuable companies in the world. Products built by venture (and therefore LP) backed companies reach billions of people every day.
This report also highlights an important “diversity washing” tactic to enhance the appearance of senior women in funds. We have studied the difference between the number of individuals who are named as “senior” and those that have ownership of the management company (and therefore access the significant economics in the fund and have the majority of the power to make decisions).
So, what are we proposing? The LP community needs to be far more transparent. Particularly LPs that are publicly funded. LPs should report the gender breakdown of the funds where their capital is being invested themselves - regularly and openly. They should sign the Investing in Women Code which has proven to be effective in getting more funding to diverse founders since it launched in 2019.13 Capturing data can make a seismic difference and influence policy to catalyse action and move billions of pounds in capital. At Ada Ventures, we are a fund 50% owned by women. We have recently launched Inclusive Alpha® our manifesto describing our approach to generating best in class returns by investing in an inclusive way. We hope that this report further catalyses change in the VC industry and encourages more LPs to subscribe to the Inclusive Alpha® approach. This report would not have been possible without the work of a small, passionate team of volunteers. Thank you so much to Sam Ettelaie, Jemima Maunder-Taylor, Christian John Rojo, Diarra Smith, David Haughton, Ladi Greenstreet, Sarah Millar and the Diversity VC team. Thank you also to our partners Google Cloud, MNAI, Total Data Services and all the contributors who provided us with comments and feedback.
Check Warner, MBE
Co-founding Partner at Ada Ventures
