The UK's Alan Turing Institute has called for more funding opportunities for women-led startups amid concerns that many are being ignored and abandoned.
According to new research from the institute, female-founded AI startups were found to account for just 2.1% of venture capital deals involving companies operating in this industry vertical.
The average capital raised by a female-founded AI company was £1.3 million, around six times less than the average £8.6 million raised by an all-male founding team.
Dr. Erin Young, author of the report and researcher at the Alan Turing Institute, said the research highlights disparities in both the funding and visibility of startups founded by women.
“We are concerned that women-led startups are being left behind, and it is particularly worrying in large sectors with high investment and low gender diversity, such as artificial intelligence software,” Young said.
“This sector is booming and seeing huge investments, but almost all of the capital invested is given to companies founded solely by men. Policy reform must focus on the inclusion of women and underrepresented groups in this space to have a tangible impact on equity and innovation.”
The institute's study details four key recommendations for the UK to improve funding opportunities for female-led AI startups.
These include:
Allocate capital to women and underrepresented entrepreneurs
The Alan Turing Institute called on the government and the British Business Bank to work closely with venture capital firms to allocate capital “specifically to invest in women and underrepresented managers and founders in AI.”
As part of this, the institute recommended that angel and growth investors sign up to the Investing in Women Code (IIWC), which aims to increase funding for women entrepreneurs across the country.
“In addition, we recommend that AI-focused funds (particularly AI software) be created that only invest in underrepresented groups,” he added.
The institute said it supports a recommendation in a 2023 House of Commons Treasury Committee report that venture capital funds be established to specifically target women and ethnic minority founders.
“To promote this objective, the Department of Business and Trade and the Treasury could require that any Defined Pension Contribution funding earmarked for venture capital firms have a minimum allocation to various fund managers, particularly in technology fields.”
Establish mandatory collection and reporting of diversity data.
The introduction of mandatory reporting of diversity-related data for LPs and GPs was another key recommendation highlighted by the institute to improve transparency across the investment landscape.
Part of this would require venture capital firms to also register with the IIWC. This builds on another finding from the Treasury Committee's inquiry into the state of funding in the UK, which suggested that companies should be “required to disclose the ethnic and gender breakdown of both the recipients of their funding and of their own staff.”
“As part of due diligence, LPs should require disclosure of data on fund ownership by gender and function.”
In October 2023, California lawmakers passed a bill requiring venture capital firms to publicly disclose the backgrounds of founders they have backed in a bid to improve investment transparency.
The law, which goes into effect in March next year, means that venture capitalists operating in the state will have to disclose information about the founders to whom they promise financial support.
“Embedding inclusion into everyday culture and practice”
The study highlighted increased efforts by stakeholders within the investment and technology ecosystem to improve diversity. This could include encouraging organizations to improve workplace culture and investment practices by incorporating them within broader ESG objectives.
“Venture capital firms should set incentives and goals to recruit, upskill, retain, and promote women and underrepresented groups,” the study says.
“Companies must take proactive steps to ensure the inclusion of women in decision-making practices.”
Venture capital funds should also “actively build relationships with the technology and business communities” in a bid to expand access to talent for both investors and founders, according to the institute.
“They must ensure that networking events and presentation practices are accessible and inclusive.”
The institute's final recommendation suggested that the government and funding bodies create “co-investment and mentoring communities” for women in technology.
These would include providing education and mentoring on investing and artificial intelligence, according to the study.
“This is important as there are fewer women and underrepresented groups in finance and technology educational channels, causing them to have fewer networks in these spaces,” the study noted.
