More investment in businesses led by women and ethnic minorities could increase the UK equity market by 13%, according to research.
Government-led initiative Investing in Women Code found that though its signatories are making progress when it comes to funding female founders, research from The Gender Index shows the number of active female-led companies in the UK dropped in 2024, and while diversity is increasing in the startup ecosystem, more needs to be done to support women in the space.
Poppy Gustafsson, minister of state for finance and previous winner of Computer Weekly’s list of the most influential women in UK tech, said: “Against a challenging economic backdrop, our signatories represent a community of forerunners who recognise both the moral case in driving systematic change for female founders and the business case for investing in women.”
“In Darktrace, I was privileged to shape an organisation which had a clear place for female leadership,” she said. “But when I spoke at industry events, all too often I found myself looking out at a sea of men – all of a certain age, all of a certain background. It was clear to me then and now that individual success stories are not enough. We need to tackle the barriers facing female entrepreneurs across the board.”
There is an investment gap in the UK technology sector, whereby those from underrepresented groups have difficulty securing the investment they need for sustained growth.
Investing in Women Code, which was founded in response to the Rose Review, aims to assess why female-led businesses face challenges when accessing funding and find solutions to some of those problems, growing from its initial size of 12 signatories in 2019 to 290 last year.
Its annual report, which drew on data from its signatories such as lenders, angel investors, community development finance institutions, limited partners, and venture and growth investors, as well as external research, cited research from The Gender Index that last year found only 19.1% of active companies in the UK were headed by women, compared with 20.1% the year before.
Digital focus
While the figures featured in the report do not relate to technology companies specifically, a large proportion of the startup ecosystem in the UK is tech-related, and a number of Investing in Women Code’s signatories are technology or digitally focused.
Not surprisingly, the number of female-led businesses which gained funding in the form of secured debt last year was significantly less than male-led businesses, according to The Gender Index, with 14.2% of women-headed businesses accessing secured funding compared with 61.1% of men-headed businesses.
This is due partly to women’s attitudes towards obtaining funding, with the SME Finance Monitor finding male business owners are more comfortable borrowing money to fund their businesses – only 34% of female business owners said they are “happy” to use external funds to grow their business, compared with 40% of male business owners.
Female founders are also more content than male founders to accept their businesses will grow more slowly so they can self-fund.
When looking for a loan, women also borrow less than men, with female-led businesses borrowing two-thirds of that borrowed by male-led businesses.
On the other side of the coin, there are also fewer female investors, which only serves to exacerbate the diversity gap in funding – women are more likely than men to invest in other women, so a lack of female investors means a lack of female investment.
Data from The British Private Equity and Venture Capital Association’s Limited Partners Diversity and inclusion report from last year found only a fifth of senior private capital investors are women, and 10% have all-male investment teams.
Of Investing in Women Code’s signatories, a quarter of angel investors are women, an increase from last year, and for five years in a row have been better at offering equity to female-led businesses than the wider equity market – in 2024, 27% of equity deals in the wider market were received by teams with at least one female founder versus 31% in Investing in Women Code’s signatories.
As for angel investment, there tends to be a more positive lean towards diverse lending, with angel groups investing more in female-led teams than male-led or mixed-gender teams last year.
But the amount given is still significantly lower for solely female teams, with the amount invested in women last year totalling £3.9m versus £9.2m in men.
The lack of diversity in angel investment was hotly debated last year, with InvestHer launching in response to HM Treasury bringing in rules that made it more difficult for women and other minority groups to qualify as angel investors – while the law was reversed due to InvestHer’s efforts, it shone a light on the disparity between men and women in the investment space.
Partners of the initiative said in the report: “While we see the rolling back of diversity, equity and inclusion initiatives in the USA, here in the UK, we have an opportunity to step into our role as global leaders – where we can be proud to make the UK a fantastic home for female entrepreneurs and investors.”