Cornerstone Partners, a leading angel network focused on investing in exceptional black and diverse founder-led businesses across the UK, has released a ground-breaking report in collaboration with Engage Inclusivity, Diversity VC and Beauhurst about the barriers to inclusive investment for minority founders in the UK. 

The purpose of the research is to identify how many black and minority ethnic founders have achieved VC backing, in addition to unveiling insights into diverse founders’ journeys and experiences of securing funding. The Cornerstone Report takes a closer look at the funding landscape for minority ethnic founders at two specific and critical stages of their funding journey: the seed/pre-VC stage (Cohort 1) and scale up/VC funded stage (Cohort 2). 

One of the report's key findings is that underrepresented founders are being excluded from opportunities in venture capital. Amongst other recommendations, Cornerstone sees this as an opportunity to issue a call to arms: VCs need to work together to eradicate exclusionary practices in our industry.

Of those who successfully raised VC funding in the period, 7.3% of founders identified as Asian and 2.9% of founders identified as Black. The data suggests that ethnic minority founders who are successful at raising seed capital are still often excluded at the pre-VC and VC stage of funding. Thereafter, they are subsequently underserved by institutional providers of venture capital. 

Wilfred Fianko, Co-Founder of Cornerstone Partners says, “At Cornerstone, we review pitch decks from 400+ businesses a year that are led by exceptional diverse founders across the UK. Our data suggests that there is a strong pipeline of “VC ready” businesses, who successfully secure seed investment, but then struggle to win the support of an institutional investor. Although an emerging cohort of funding vehicles which include Cornerstone, Ada Ventures, 10x10 and Impact X to name a few exist, we believe that more work needs to be done, particularly for those businesses at the scale stage. The ongoing support of the Government, trade bodies and other agency groups will be key to amplifying current efforts.” 

The full research is available here, and the Key Findings are highlighted below. 

• Underrepresented founders are being excluded from the opportunities of equity investment at a very early stage of business development, Black founders are hugely underrepresented in both cohorts, with 1% of pre-VC and 3% of VC-funded founders identifying as Black. This is significant considering 53% of both cohorts are based in London, where the Greater London Authority estimates the population as 16% Black (GLA, 2016).

• Black and racially minoritised women and nonbinary founders are the worst represented, and the work on inclusion of women must continue (The Guardian, 2020).

• Three-quarters of founders come from advantaged socioeconomic backgrounds, and hardly any founders come from families living on welfare entitlements. 

• The majority of all founders are graduates from prestigious universities and VC funding is more likely to go to founders who have been to the most exclusive universities. With 35% of teams without any graduates from top tier/ exclusive universities finding out about VC through personal research, and a further 5% through events/webinars

• This research contributes to efforts to indicate that whilst the  VC industry has in some cases suggested a ‘pipeline problem’, citing a lack of suitable businesses run by women, Black and racially minoritised founders - the problem lies with VC’s limited perspective (Forbes, 2018).  

However, in conducting this research, Cornerstone Partners are keen to offer some recommendations. The recommendations below are intended to positively address the challenge faced by underrepresented founders when raising VC capital. 

• Equity investment professionals must recognise the tacit use of networks for risk mitigation, and develop new processes to  replace these exclusionary practices 

• The creation of schemes that support and amplify the work of  angel groups, accelerators, and diverse managers that invest  in businesses led by minoritised founders 

• Encouragement of "open VC" model which sees stakeholders work with the BVCA (British Private Equity and Venture  Capital Association) to create guides that eradicate exclusionary practices, to enable groups with less social capital to gain access to investment networks. 

• Introduction of early career development programmes that  increase the exposure of venture capital to diverse audiences 

• Further research is needed to examine businesses prior to  our ‘Pre-VC’ stage to understand where founders from  underrepresented groups are facing a glass ceiling 

• Further research is needed into the disparities within broad  ethnic groups  

• Further research is needed on the experiences of non-binary  and gender-nonconforming founders 

The report also calls for further research to be conducted particularly on businesses in the ‘Pre-VC’ stage to gain further clarity on where exactly founders from underrepresented groups are facing a glass ceiling. 

Rodney Appiah, Chairman of Cornerstone Partners, commends the work of the emerging ecosystem and calls for further research, particularly in relation to the emerging pipeline from black and diverse founders. 

“We are delighted to have commissioned this important piece of research which seeks to move the conversation forward and further analyses the specific challenges faced by black and diverse founders at different points of the funding lifecycle. We look forward to continuing to build on these findings with our partners and provide the insight and tools that funders need to support exceptional founders regardless of their background”

Check Warner, CEO of Diversity VC said, “This report serves to remind us how accessibility to venture capital continues to evade minoritised founders - a missed opportunity for investors. 

Whilst there are encouraging signs that founding teams with mixed ethnicities are starting to feel more supported, the barriers to entry remain high and there is far too little progress being made with non-binary and female founders. The industry needs to adopt a culture of inclusivity and a set of standards that eliminate biases and exclusionary practices. At Diversity VC we believe that doing so will unlock a more equitable and valuable future for all.“

Henna Zamurd-Butt, Director of Engage Inclusivity and report author said, “Currently investor processes for evaluating businesses tacitly seem to rely on network integration of founders to mitigate risk. This reliance on social capital - be that through schooling, university or familial connections is a self-fulfilling prophecy - any founder who is a part of these fairly closed networks is much more likely to be able to get investment. To step out of this cycle we need investors and policymakers to first, acknowledge these processes exist and are exclusionary, and second, engage in an honest and open discussion to determine how to better mitigate risk.”

Henry Whorwood, Head of Research & Consultancy at Beauhurst said, “We’re thrilled to have contributed our data to Cornerstone’s groundbreaking new report, which plainly shows that different racial, gender and socioeconomic groups face unequal experiences and opportunities when it comes to raising investment. Using our coverage of the UK’s high-growth space, we will continue to work with as many stakeholders as possible to highlight inequality, in order to build a fairer funding ecosystem for all.”

Seb Butt, Head of Partnerships at Diversity VC and founder of Future VC says “There’s a growing awareness amongst stakeholder groups that lack of access to equity and debt capital is stifling businesses led by marginalised founders, particularly in the early stages of growth. 

Recognising the important role of research in identifying these issues and providing evidence-based approaches to solving them, we set out to build on the excellent work carried out by organisations such as the British Business Bank, Extend Ventures, 10x10, Google for Startups, OneTech, YSYS and Atomico.”

Cornerstone Partners would like to take this opportunity to thank Engage Inclusivity, Diversity VC, and Beauhurst for their contributions to this report.