New report (UK): female-founded AI startups account for under 3% of VC funding

Jana Hlistova

Oct 08, 2023

Welcome to our #207 weekly newsletter.

“For women taking control of their financial future”

-Jana Hlistova

From The Purse

In this week’s newsletter, we highlight the new report published by The Alan Turing Institute which states that female-founded AI startups account for under 3% of VC funding in the UK.

A key issue in the industry is the fact that VC firms continue to be dominated by men who prefer to invest in founders ‘who look and sound like them’.

Only 5% of VC firms that participated in funding deals have an equal or majority representation of women at decision maker level.

As women investors tend to invest in women up to three times the rate of men, their role in the startup ecosystem is vital, as they help to diversify investing decisions (which may better serve the world we live in today and in the future).

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And you can review the news in brief so you stay on top of global financial, economic and investing trends.

I hope you enjoy this week’s newsletter.

Until next week,

Jana

New report (UK): female-founded AI startups account for under 3% of VC funding

A new report by The Alan Turing Institute highlights the underinvestment in female-founded teams in the booming AI industry.

A new report, Rebalancing Innovation: Women, AI and Venture Capital in the UK, paints a concerning picture of gender diversity in AI-focused VC investing.

Female-founded companies account for under 3% of venture capital (VC) funding deals involving AI startups.

And between 2012 and 2022, 80% of total capital invested by VCs in AI was raised by all-male teams. In contrast, all-female teams raised a mere 0.3%.

Here are the key points from the Alan Turing Institute report:

Female-founded AI startups raised 6 times less capital than their male peers.
All-female teams raised £1.3m per deal compared with an average of £8.6m raised by all-male teams.
Most of the teams who make these funding decisions are men.
Only 5% of VC firms that participated in funding deals have an equal or majority representation of women at decision maker level.

As we know, VC funding plays a crucial role in technological innovation. They determine who and what gets funded, the growth trajectory and shape the culture of the startup.

White, male VCs tend to invest in founders who ‘look and sound like them’ and very often this does not align with female founders who continue to bump up against gender stereotyping and gender bias.

With the explosion of generative AI, there is an urgent need for women have an equal place in the VC ecosystem as investors and entrepreneurs.

Based on research, women investors..

..tend to invest in women entrepreneurs up to three times the rate of men investors. They share in the same lived experience as women entrepreneurs which can reduce the resistance women experience during the fundraising process.

Many reports point to women entrepreneurs needing to contend with outdated stereotypes from mostly male VCs, who continue to mistake ‘gender difference’ with a more risky startup or a lack of competence and experience.

As a result, we continue to see VC investment funding very similar startups, which may no longer be ‘fit for purpose’ in a high-interest world, grappling with fiat currency debasement, climate change and wealth inequality issues.

Moreover, they do very little to mitigate the risk of embedding bias and gender discrimination in AI-based products.

The Alan Turing Institute Report outlines some key recommendations including:

improving the recruitment and promotion processes at VC firms
fostering an inclusive culture
monitoring investment practices
and diversifying the ecosystem.

According to Dr Erin Young, Research Fellow and Project Co-Lead at The Alan Turing Institute:

“The stark figures in our report show the extent of gender inequality in venture capital funding.
Making sure more female-founded AI companies receive investment is crucial for encouraging responsible AI and fostering innovation.
One can only imagine what technical products and services might have been invented if women had equal participation in the VC and entrepreneurial ecosystem. We hope that our report offers a crucial starting point for these conversations.”

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