Diversity in Capital Allocation

The UK prides itself on being one of the world's leading financial hubs. Yet, beneath this global reputation lies a stark imbalance: capital allocation continues to flow predominantly to a narrow pool of founders - disproportionately white, male, and from elite university backgrounds. Only 1.8% of equity capital went to fully female-founded businesses in the first quarter of 2024.

This is not just an issue of fairness. It is an issue of unlocking growth. Women and ethnic minority founders are innovating in some of the UK's most dynamic growth sectors, from fintech and insurtech to healthtech and green solutions. Women represent 50% of the population and ethnic minorities are a growing share of the UK's workforce and consumer base. Ignoring these groups means ignoring vast markets with huge purchasing power and unmet needs.

Ensuring they can access capital is not only the right thing to do - it is the commercially smart thing to do for the UK economy to remain competitive, resilient and aligned with the needs of a diverse population.

The commercial case for diversity
Evidence consistently shows that businesses founded or led by women and ethnic minorities deliver superior results: female-led startups generated 78 cents in revenue per dollar, compared to 31 cents for male-led startups; UK fintechs with female founders achieved an average internal rate of return (IRR) of 112% compared to 48% for male-only teams; and women-led businesses deliver 35% higher returns than male businesses, despite their small percentage of VC funding.

Founders from diverse backgrounds often build solutions that reflect their lived experience - spotting gaps that homogenous teams miss. For businesses with global ambitions, diverse backgrounds can tap into these emerging regions that offer not only larger customer bases and faster-growing markets but also present more prominent market gaps. From financial inclusion tools to culturally relevant healthtech platforms, these businesses serve broader markets and create stronger customer loyalty. It isn't just female founders that have an impact either: more women on boards deliver 2-5% higher annual returns, and European Investment Bank analysis found that gender-diverse executive teams are 25-28% more likely to outperform peers. The pattern is clear: diversity is not a concession; it is a competitive advantage.

The cost of undervaluing diverse founders
Despite this evidence, women-led businesses receive a small percentage of venture capital funding in the UK. McKinsey's research also highlighted the funding gap being faced by Black, Latino and women entrepreneurs and the enormous opportunity that could be unlocked if this gap was closed. The undervaluing of diverse founders is not about lack of capability or ambition; systemic barriers prevail. Pattern-matching bias, where investors often back those who resemble past "success stories" (which fall to white, male, elite backgrounds), leads to women and ethnic minorities being asked tougher questions, offered smaller ticket sizes or being
excluded from networks where capital flows. Personally, I have faced situations where investors questioned my credibility or assumed my business ambitions were lifestyle rather than scale-focused - biases my male peers rarely encounter.

These are not just individual experiences - they are structural issues that limit capital flow to high-potential businesses. Navigating growing your own business is a challenge in itself, but these extra challenges and barriers put unnecessary and demeaning blockers on female and minority business leaders that could be shaking up sectors and bringing real capital growth to the UK. Persistence and building strong networks have proven essential to me in the development of my business. I sought out accelerators, mentors, and supportive investors who understood the value of my vision. Storytelling has been vital too - demonstrating not just financials but the real-world impact of Tapoly. Transparency and traction speak louder than bias; showing growth and resilience helped overcome many preconceptions. However, persistence should not have to be the entry point for diverse founders to be taken seriously.

Government initiatives and what really moves the needle
The UK Government's £500m investment is a welcome step. The initiative includes a £400m package operating across three pillars: the Enterprise Capital Funds programmed backing more diverse fund managers; micro-funds investment around £10-15m; and backing partners, such as venture capital funds, to invest smaller amounts into those without a prior track record or personal wealth to become investors.
The initiatives will raise much-needed awareness and create opportunities, but on its own, it won't close the structural funding gap. Real change requires sustained, large-scale investment and accountability.

Too often, we see capital raised under the banner of "diversity" without the real commitment, experience or understanding required to genuinely support under-represented founders. We must focus on outcomes, not optics. A target of 50% of investment going to female fund managers is not enough if that capital doesn't reach female and ethnic minority founders themselves. The ultimate measure should be where the money flows, not who administers it. The needle needs systemic change otherwise we risk embedding bias at multiple levels. The solution is accountability. Public reporting on where funds are allocated, independent
audits, and feedback from founders must become the norm. Capital needs to go alongside support.

Building the right ecosystem around capital
To create sustainable impact, we must also build networks, mentorship and procurement pathways that solidify continued success. The support ecosystem needs to work at two levels. First-time founders need all-round support, including mentorship, incubators, training and access to networks that help them gain experience and confidence. Experienced founders need more advanced assistance such as capital at scale and direct access to partners and customers to accelerate growth. By tailoring support to where founders are in their journey, we can make sure women and minority entrepreneurs not only start businesses, but can also scale them successfully and deliver stronger returns.This requires a joint effort across the whole ecosystem - government, investors, corporates, and founders themselves. The government can provide seed funding, set clear policy incentives, and enforce measures that encourage more investors and partners, while investors can combine capital with structured mentorship, corporates can open procurement pipelines to diverse entrepreneurs, and industry groups can create peer networks and visibility. All of this will shorten the time it takes to move from idea to scale, overcoming the barriers to growth.

It also requires a cultural shift - we need to challenge assumptions about what a "successful" founder looks like and normalise women and ethnic minority leadership at scale. Diversity must be embedded in investment strategies throughout the ecosystem not treated just as corporate social responsibility. When businesses see diversity as central to growth and innovation, the change becomes sustainable.

Diversity in capital allocation is not just a moral imperative. By ensuring female and minority founders get fair access to capital, we not only close a long-standing gap, but also future- proof the UK economy. Backing them means backing innovation, resilience, and new growth sectors that will define global competitiveness in the decades to come. Women and ethnic minority founders are already delivering superior returns. With equitable access to capital and the right ecosystems of support, they will do even more - for investors, for the
economy, and for society at large.