Direct Investments

When the worlds of venture capital and diversity collide

L-r: Michelle Heaselgrave, Head of People & Talent, Jill Williams, Investment Director & Sandy Reid, Investment Manager

On International Women’s Day, female representatives of Mercia’s investment team argue that whilst there are shortcomings in the VC industry, some progress is being made but insist that mandating female-led investment levels is not necessary.

Many institutional investors employ no women at senior level, with industry wide figures reaching a paltry six percent. Mercia’s Investment Director Jill Williams and Investment Manager Sandy Reid believe that a full and diverse investment team could be the touchstone to breaking the deadlock, but both vehemently insist that this shouldn’t be achieved through tokenism.

This subject has received wide-reaching interest following the recently published UK VC & Female Founders report which highlighted that for every £1 of venture capital investment, less than 1p goes to all-female founder teams. By comparison, all-male founder teams receive 89p and mixed-gender teams get the remaining 10p. The research, commissioned by the government, will inform ongoing work to tackle the underfunding issue and ultimately boost the economy.

Alice Hu Wagner, Managing Director, Strategy & Economics from the British Business Bank said “Experience tells us that seemingly simple solutions are attractive but flawed: mandating female decision-makers risks tokenism; earmarking ‘women only’ money does not address underlying closed networks and experience gaps. We need new approaches to addressing these issues and this report is just a first step.”

The approach epitomised by Mercia is to present, but not artificially create, diversity throughout its own investment team. Head of People and Talent at Mercia, Michelle Heaselgrave explains “Mercia has been through a rapid expansion programme in the last two years and we now have 93 investment professionals and support staff in our business. Of the 66 strong investment team almost one third of these are female and just under a half (42%) of the Senior Management Team are female. The profiles of our female investors are impressive, with highly significant and successful track records which is something we are extremely proud of.”

There are however more significant challenges in the mix which could explain the lack of funding received by female-led businesses. Suggestions offered by the Mercia team include the balance of lifestyle businesses run by female founders which by their very nature are not built to scale; and the low number of women represented in the very sectors which venture capital is geared towards such as software, AI and medical technology.

The UK VC & Female Founders report revealed that venture capital investment in start-ups with female founders is increasing but progress is very slow. At current rates, for all-female teams to reach even 10 per cent of all deals will take more than 25 years (until 2045).

Since starting in private equity and investing over ten years ago, Jill Williams from Mercia, originally met very few businesses with women on the board. Now ten years later, there is typically at least one on the board of the aspirational companies that apply for VC funding, but sadly still not many founders are female.

Providing support from within the VC industry

Over the last five years, there has been a concerted effort by organisations such as British Business Angels to increase the numbers of senior women in the VC and private equity community. Level 20, a not- for-profit organisation inspiring women to join the private equity industry, is targeting up to 20%.

Going against the grain Mercia’s main Board of independent non-executive directors (NEDs) is also well represented with two of the five being female senior executives; Susan Searle (Chair and formerly co-founder and CEO of Imperial Innovations plc) and Caroline Plumb (NED, and cofounder and CEO of Fluidly Ltd). While it is unusual to have this many woman on the Board of an investment firm, we believe that this is just the beginning and others that recognise the material benefit will follow.

One of our portfolio companies is a particularly relevant example of successful diversity. SnapDragon has secured £1.5 million funding and helps small and medium sized businesses successfully identify and remove counterfeits from the world’s busiest online marketplaces. Clients include the Harris Tweed Authority and Morphsuits and the team employs 14 nationalities, 70% of whom are women, from its Edinburgh office.

Founder Rachel Jones believes that, “there aren’t enough women in the VC industry or looking for money. For me it was key that there was a woman sitting on Mercia’s board, otherwise I would have looked elsewhere for funding. Female entrepreneurs have to work ten times harder to secure investment in most circumstances. I was looking for a VC with an open door policy and a wider view of the world, which can only be gained through diversity”.

“It’s surely better for any fund to invest in a range of businesses - from a risk and reward perspective anyway? And female led- businesses can be incredibly successful, and I’d like to see more women engaged in VC investment decision making. While very early stage funding and grants are relatively easy to secure for both men and women, there is a misalignment when seeking larger amounts”.

“Now is the perfect time to create a forum where women-led businesses work with VCs to understand what we can do collectively to encourage more female entrepreneurs seeking significant amounts of funding.”

Women – step forward

We want more aspirational, motivated and hardworking women to put businesses forward. Denise Coates, founder of online gambling firm Bet365, is one of the most successful CEOs in the world yet media interest has disappointingly focused simply on her remuneration rather than the success of the business which she founded. We need many more women like Denise to buck the trend. To do this, we must ensure that nothing stands in the way of female-led business, whether institutional barriers or a risk-averse culture. Open and meritocratic financing processes will ultimately grow the economy and make use of all the talent we have.

The British Business Bank research indicates that networking has a strong impact on subsequent venture capital investments. Start-up founders who are recommended to a VC firm by someone in the VC’s network, known as a ‘warm’ introduction, are 13 times more likely to get funded than founders who apply without a recommendation. The data shows that all-female teams are less likely to get a warm introduction to a VC firm – although when they do, they progress proportionately.

Today, the world of corporate finance and the intermediary market is male-dominated which may lead to an unconscious bias and be off-putting to female founders. However, as part of the investment process, Mercia holds assessment days where potential investees are invited to present their ideas and meet the members of the investment team who they would work with.

As a result, we believe that female-founded business owners will take comfort from seeing that Mercia is far from being an all-male environment and there is less apprehension of bias (unconscious or otherwise). While there are women-centric schemes offering business grants, Mercia believe that female entrepreneurs looking for more capital should be encouraged to apply for VC funding, which has far more to offer in the long-term.

Women founders should not be deterred when approaching VCs as the door is open; we want to encourage more women-founded businesses to approach us, help us break barriers and change the landscape once and for all.


Jill Williams, Investment Director

Sandy Reid, Investment Manager