The UK’s Alan Turing Institute has called for more funding opportunities for female-led startups amid concerns many are being overlooked and left behind.
Female-founded AI startups were found to account for just 2.1% of VC deals involving firms operating in this industry vertical, according to new research from the institute.
The average capital raised by a female-founded AI company stood at £1.3 million, roughly six-times lower than the average £8.6 million raised by an all-male founder team.
Dr Erin Young, author of the report and research fellow at The Alan Turing Institute, said the research highlights concerning disparities in both funding and visibility for female-founded startups.
“We’re concerned that women-led startups are being left behind, and it’s particularly worrying in large sectors with high investment and little gender diversity like AI software,” Young said.
“This sector is booming, experiencing enormous investment but almost all of the capital invested is being awarded to businesses founded only by men. Policy reform must focus on the inclusion of women and under-represented groups in this space to have tangible impact on equity and innovation.”
The study from the institute detailed four key recommendations for the UK to improve funding opportunities for women-led AI startups.
These include:
Allocating capital to women and under-represented entrepreneurs
The Alan Turing Institute called on the government and British Business Bank to work closely with VC firms to allocate capital “specifically to invest in women and under-represented managers and founders in AI”.
As part of this, the institute recommended that angel and growth investors should sign up to the Investing in Women Code (IIWC), which aims to increase funding for female entrepreneurs across the country.
“Additionally, we recommend that AI-focused funds (particularly in AI software) be set up which only invest in under-represented groups,” it added.
The institute noted it supports a recommendation from a House of Commons Treasury Committee 2023 report that VC funds be established to specifically target women and ethnic minority founders.
“To further this aim, the Department for Business and Trade and the Treasury could mandate that any Defined Pension Contribution funding going to VC firms has a minimum allocation to diverse 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 in order to improve transparency across the investment landscape.
Part of this would require VC firms to also sign up to the IIWC. This is based on another finding from the Treasury Committee investigation into the state of funding in the UK, which suggested that firms should be “required to disclose the gender and ethnic breakdown of both recipients of their funding and their own staff”.
“As part of due diligence LPs should require the disclosure of data about the ownership of funds by gender and role.”
In October 2023, California lawmakers passed a bill that requires VC firms to publicly disclose the backgrounds of founders they’ve supported in a bid to improve investment transparency.
The law, which is due to come into effect in March next year, means VCs operating in the state will have to disclose information on founders they pledge financial support to.
“Embed inclusion into everyday culture and practice”
Greater efforts from stakeholders within the investment and technology ecosystem to improve diversity were highlighted in the study. This could include encouraging organizations to improve workplace culture and investment practices by incorporating them within broader ESG goals.
“VC firms must establish incentives and targets for recruiting, up-skilling, retaining and promoting women and underrepresented groups,” the study said.
“Firms need to take proactive steps to ensure the inclusion of women in decision making practices.”
VC funds should also “actively build relationships with tech and entrepreneurial communities” in a bid to widen access to both investor and founder talent, according to the institute.
“They should ensure that networking events and pitching practices are accessible and inclusive.”
The final recommendation from the institute suggested the government and funding bodies create “co-investment and mentoring communities” for women in tech.
These would include providing education and mentorship around investing and AI, the study said.
“This is important as there are fewer women and under-represented groups in the finance and technology educational pipelines, resulting in them having fewer networks in these spaces” the study noted,
