Backing diverse ambitions in investment

Creating a strong and diverse early-stage investment community, with increased representation and participation, has a vital role to play in transforming Scotland’s economy. Investors and companies with diverse and ambitious teams have a broader understanding of market dynamics and growth opportunities, which we know drive innovation and success.

At Scottish Enterprise we are championing diversity, equity and inclusion (DE&I) across the investment and entrepreneurial landscape. We do this, not just because it is the right thing to do, but because it is key to maximising the contribution of all our available economic assets to deliver economic growth:

• McKinsey research points to companies in the top quartile of board-gender diversity being 27% more likely than those in the bottom quartile to outperform financially.
• The same research found that companies in the top quartile for ethnically diverse boards are 13% more likely to outperform those in the bottom quartile.
• According to Pitchbook female-founded companies have demonstrated the ability to exit efficiently, with a median time to exit of 7.9 years – six months faster than the broader pool of companies.
• And, according to a Centre for Research in Ethnic Minority Entrepreneurship report there is potential to generate a four-fold increase in the annual GVA for ethnic minority businesses from £25 billion to £100 billion.

Championing diversity

Last year we hosted our ‘Diversity in Investment’ event, alongside Diversity VC, which featured an expert panel including representatives from Puma Private Equity and Morgan Stanley Inclusive Venture Labs. It was a great opportunity to bring together Scotland’s investment community to build our shared understanding of the challenges and opportunities we collectively face in seeking to adopt new practices and ways of working that contribute to our DE&I ambitions.  

Those at the event heard from Diversity VC about the growing and compelling evidence on the business benefits of DE&I. For example, a diverse management team or founding team can improve the quality of decision making and be more successful. And companies that reflect the customer base they seek to serve are better at understanding customer needs and new business opportunities.

The discussion ignited new ideas on how we can challenge our current thinking and approaches. There was an acknowledgement that DE&I can also contribute to increased levels of productivity and help to maximise the contribution of all our available economic assets to deliver economic growth.

The panel members shared how they had adapted their decision-making processes and business practices to increase representation and participation, and as a result had seen improved access to new talent and investment opportunities.

The challenge

The investment sector faces systemic challenges. It has historically been dominated by a narrow demographic, which can lead to biases in investment decisions and limit opportunities. Entrepreneurs from diverse backgrounds often struggle to know where to look to find investors who understand their vision or see potential in their ideas according to the British Business Bank.  

Implicit bias, along with repeating patterns in investment decisions where they have been successful in the past, can limit the selection processes and disadvantage founders who do not fit expectations, even when they have innovative and high-growth potential ideas. In addition, heavy reliance on established networks, which can often be closed to underrepresented groups, can further perpetuate the exclusion of diverse founders.

It is also the case that incremental change in not enough as we can see from the slow progress on a number of indicators.  However, we are increasingly seeing a drive towards new ideas and approaches across the Scottish investment ecosystem and Scottish Enterprise wants to help drive that shift.  

Our Ambition

At Scottish Enterprise we want to continue to work with our partners in the investment ecosystem to unlock the potential of a diverse and inclusive investment approach. By working collectively, we can continue to raise ambitions across Scotland’s network of investors, companies and entrepreneurs to do more and to find and implement new ideas and solutions.

We’re already committed to broadening our own activity and approaches. For example, we are one of the signatories to the ‘Pathways Pledge’ from Pathways Forward, which was launched in response to the Scottish Government commissioned report on women in entrepreneurship. We’ve pledged to use our experience and position in Scotland’s early-stage risk capital market to work with the investment ecosystem to provide new innovative ideas, inspiration and practical support for investors to develop their approach to diversity. And we’ve launched our Pathways to Scale programme where we work intensively with female founders to equip them with skills and networks needed to scale their business and secure investment.  

We have a renewed focus on ensuring we get the right data from the companies we invest into and support to help us better understand diversity within our portfolio and to guide our wider activity. This supports our objectives of creating economic and societal value in the companies we work with.

Next steps

We want to work with our partners to drive more ambition in our collective response to these challenges, share best practice and amplify impact. There are great examples of innovative and proactive initiatives across our investment ecosystem, along with opportunities to share learning and importantly new ways of working. DE&I is not only about doing the right thing, it’s about making the best possible use of our available resources and getting the very best out of our talent pool. I am convinced that by channelling our collective efforts we can make a real difference.

To find out more about Scottish Enterprise’s investment activities or get in touch, visit our website.