More funding needed for women-led AI start-ups, says report

Female-led AI start-ups are being left behind when it comes to investment capital despite an influx of finance, new research has shown.

A new paper, published by The Alan Turing Institute, found that the gender gap in the AI software sector is particularly stark with only 0.7 per cent (£72.9m) of the total capital invested since 2010 (£10.5bn) going towards female-led startups.

The research said female-led companies account for only four per cent of the total number of start-ups in this sector, compared to all-male founding teams which make up 78 per cent, raising nearly 77 per cent of the total capital invested.

Professor Judy Wajcman, lead author of the report said: “The lack of diversity in the VC ecosystem sells both women and the economy short”.

The researchers recommended that investors ringfenced investment capital for women and underrepresented entrepreneurs working in AI to improve funding for women-led AI startups in the UK.

They also said that it should be mandatory for investors to collect and report their diversity data, especially when investing in new technology. This could involve enforcing VC firms to sign up to the Investing in Women Code, where signatories are obliged to do this.

Dr Erin Young, report author and research fellow at The Alan Turing Institute, said: “We’re concerned that women-led start-ups are being left behind, and it’s particularly worrying in large sectors with high investment and little gender diversity like AI software.

“This sector is booming, experiencing enormous investment but almost all of the capital invested is being awarded to businesses founded only by men. Policy reform must focus on the inclusion of women and under-represented groups in this space to have tangible impact on equity and innovation.”

The researchers said that inclusion should be embedded into everyday culture and practice across the whole AI ecosystem. For some companies, they said, this could mean incorporating inclusionary practices in their environmental, social and governance performance (ESG) goals – a non-financial measure of the success of a business.

They also recommended that the government and other funding bodies fostered a culture of co-investment and set up mentoring communities and syndicates for women in tech, including providing education and mentorship on investing in AI to increase the networking opportunities for these groups.

While the number of female-founded companies created in 2022 was double that of 2018, the percentage of companies barely changed over that period with around 11 per cent of start-ups with at least one female founder receiving funding.

This analysis builds on previous work done by this research team which showed that female-founded companies account for under three per cent of VC funding deals involving AI start-ups.

Professor Helen Margetts, director of the public policy programme at The Alan Turing Institute, said: “The lack of gender diversity in technology, and specifically in AI, constrains the wide variety of perspectives needed to encourage innovation.

“This important research shows there’s a lot of work to be done but prioritising gender diversity is crucial to ensure we have a well-rounded and versatile economy.”