Improving funding and support for minoritised entrepreneurs

How our investment teams are helping to level the venture capital playing field

We are proud to announce that Nesta Impact Investments has been certified as a Level 2 Diversity VC Standard fund. Now we want to create even better outcomes for diverse founders and our investment teams.

At Nesta, we want to make sure that the capital we invest is accessible to everyone, and that the companies we invest in are supported in the best possible ways. As has been shown by multiple reports, over the past 10 years, teams led by minoritised ethnic groups or female entrepreneurs have received a fraction of the available VC funding compared to all-white teams and male founders. Funding is also skewed along particular socioeconomic lines, for example 72% of VC funded businesses have founders who went to “top tier” universities. Investors need to do more to address the barriers to funding that diverse founders may face and we are proud to be making progress in this area, both across our impact investment work and via our Mission Studio partnership with Founders Factory.

The benchmark for inclusivity in the investment sector is the Diversity VC Standard, an assessment and accreditation process that sets guidance for best practice when it comes to diversity and inclusion in the venture capital (VC) sector.

Diversity VC Standard accreditation – what it is and why it matters

The assessment reviews a wide range of practices, ranging from how deals are sourced, to investment processes, recruitment and how organisations work with portfolio companies, alongside internal Equity, Diversity and Inclusion (EDI) policies and initiatives. The Standard was launched in 2020 by the nonprofit Diversity VC, in partnership with Diversio and OneTech, to improve practice across the industry and bring together a community of committed investors. As the accreditation is a holistic certification that recognises everything an investment fund does, it was important for us to view our VC practices in connection with Nesta’s wider ED&I commitments.

Nesta’s Impact Investments and Arts and Culture Finance teams have been certified as some of the highest performing fund managers that have participated in the certification process to date. In many ways, this is just the beginning of our journey, so we thought it would be useful to share how we got here and to assess the future potential.

What we did to get here

Last March (2021), Nesta launched a company-wide EDI strategy.

As part of this strategy, Nesta’s Investment team carried out a literature review of the latest research on diversity in the venture capital industry. Then we reviewed over 35 different aspects of our own investment policies and processes. This included conducting a review of our own employee and portfolio company demographic data as well as our hiring practices and employee support programmes. We have also rolled out an environmental, social and governance (ESG) questionnaire, which includes questions on diversity, for our portfolio companies. With this data we will be able to benchmark and support our current portfolios’ ESG performance in line with the VC sector.

Some of the key policies and practices that enabled us to be accredited to a Level 2 standard included:

• internal policies: family leave policy; flexible work policies; harassment and discrimination policies; annual equal pay analysis; organisation-wide ED&I-specific goals; cultural competency training; having a chief D&I officer.
• investment strategy: having an investment-specific ED&I strategy; having ED&I-specific investment targets.
• recruitment: policies reducing bias in the hiring process; proactive engagement with recruiters focussed on diverse talent
• external engagement: participating in diverse founder office hours.

Our findings also indicated that there were some key improvements that could be made to ensure we continue to improve on our equitable investment processes. These are:

• ensuring transparent and easily accessible investment criteria
• standardising initial founder meeting mechanics and questions
• broadening our deal sourcing processes to proactively widen our applicant pool

What’s next for Nesta Impact Investments?

We are looking forward to joining Diversity VC Standard’s community of accredited funds, and to learning from and sharing with others how we can effectively improve EDI in VC. We have committed to an initial target – that by 2025, 25% of our investees will be led by those from minoritised backgrounds. However we hope to surpass this target!

Our initial priorities are to:

• more rigorously collect ED&I data across our entire investment process
• broaden the support we offer to our portfolio companies such as exploring training on EDI in tech and on how to collect ED&I data
• support portfolio companies in recruiting diverse talent at the executive and board level
• work to deliver our portfolio target of 25% of investee companies to be led by people from minoritised backgrounds
• consider how to meaningfully incorporate socioeconomic factors into our investment process and ED&I strategy

Our Arts & Culture Finance team’s strategy for increasing the diversity of their portfolio can be found here.

Calling all founders

If you are a founder looking to raise capital and your business aligns with our investment strategy, please get in touch with us . We invest £500k-£1m in Seed-Series A ventures working in the areas of healthy ageing, edtech, foodtech, healthtech, climate tech, the future of work and productivity. These sectors reflect Nesta’s core impact goals:

• improving school readiness at age 5 and secondary school attainment (fairer start mission)
• tackling obesity and loneliness, supporting healthy ageing (healthy life mission)
• reducing household carbon emissions and improving productivity (sustainable future mission)

Nesta is an impact investor, looking for high growth, commercial ventures that also deliver strong social or environmental impact.