A new study from open data over a ten year period reveals that start-ups led by a culturally diverse management team receive significantly more funding that those only with UK nationals at the helm.

The analysis comes from data science hub Pivigo, based on data sets from Companies House and Crunchbase, examining companies founded between 2004 and 2014.

Businesses with three to four directors, of which two or more are non-UK nationals, received an average of £13.8 million in funding, compared to £3.5 million average raised by companies with UK-only directors.

According to Pivigo, some of the most successful businesses to come out of the UK in recent years have diverse senior management teams. Unicorn businesses like London-based luxury fashion retailer, Farfetch, has received £125 million in funding since being founded in 2008. As well as Portuguese founder Jose Neves, the company also has directors from France and Ireland. Similarly, augmented reality and artificial intelligence platform Blippar, co-founded by Jess Butcher, has board members from the UK, India, Spain and the US. The company has received around £75 million in funding to date.

For Pivigo co-founder and CEO, Kim Nilsson, the analysis is yet another proof-point for the case for diversity in business. “Diversity is an essential part of challenging the status quo and creating unique and exciting ideas that have the ability to penetrate national borders and stand up on the world stage,” she said. “We hope this data demonstrates the importance of diversity for London, the UK and further afield, and will encourage more organisations to build business models that allow international collaboration, regardless or trade boundaries.”

London VCs favour fintech

In Europe, fintech is synonymous with London, and despite a slight decline in funding last year, the sector is still a VC favourite. According to data from London & Partners, investments into fintech start-ups accounted for almost a quarter of the £2 billion invested into London-based tech businesses in 2015. Of these start-ups, FX disruptor Transferwise, famously founded by Estonian entrepreneurs Taavet Hinrikus and Kristo Käärmann, received £45 million in funding, one of the biggest investments in the period. London fintech companies received a further £820 million in 2016, according to Fintech Global.

The UK’s fintech sector relies heavily on a highly skilled, and internationally diverse workforce. Much of the talent which underpins UK fintech is global in nature. 30 per cent of Innovate Finance’s (non-institutional) founders are non-British. This trend is not confined to UK fintech, with Tech UK figures revealing that one in five of the digital economy’s 3 million workers born outside the UK, and a third of those are from countries in the EU.

If this is combined with the lack of STEM skilled workers in the UK, which represents an annual shortfall of 40,000 according to the Campaign for Science and Engineering, with only 14.4 per cent of those in STEM occupations being women, there is a clear mandate to advocate for diversity.

Pivigo’s analysis suggests the success of London’s fintech sector is aligned to its culturally diverse founding teams, alongside fashion and travel. Among these highly diverse sectors, roughly two in three businesses have at least one director from outside of the UK.

Fashion, online retail in particular, has catapulted London globally in recent years. There have been over 50 fashion companies started in London since 2004, and Balderton alone has investment around £700 million in the industry over that period. In addition to Farfetch, Lyst is another example of a successful business with a diverse management team. The company has raised £38 million in investment since 2010, with its management team including members from the UK and Slovenia.

Brexit and London’s diversity dilemma

With Brexit negotiations on the horizon, many start-up founders fear whether a post-brexit UK will be able to attract the world’s best tech talent. A recent report, released by global recruitment tech firm, Hired, echoes this fear, revealing data on the impact Brexit is already having on the UK’s tech sector. The UK’s foreign tech talent pool has halved since Brexit vote, according to the report. The rate at which foreign tech workers accept UK roles has decreased by nearly 20 per cent since the Brexit vote, while UK tech firms recruitment of foreign workers has dropped by 30 per cent. Additionally, 70 per cent of UK tech workers have considered leaving the UK, with the majority planning to move to other European cities, North America or Australia in the aftermath of Brexit.

“Investment is a crucial part of scaling businesses, which London needs to do to retain its position of a global leader in innovation. Brexit has the potential to impact not just access to talent, but the movement of entrepreneurial individuals that see London as a hotbed for investment, creativity and collaboration. As our government navigates its negotiations, we hope to see a deal that enables London to continue to be a diverse city – and businesses to build diverse teams that represent multiple nationalities, cultures and genders – not just at the senior level, but throughout the organisation too,” Pivigo’s Nilsson added.

Underscoring today’s findings from Pivigo, the Hired report also highlighted that 85 per cent of UK tech workers believe Brexit could negatively impact innovation. Four in ten also said they are less likely to start their own business in the UK as a result of Brexit.

Despite fears of continued Brexit-related uncertainty, total UK VC investment rose in the first quarter of 2017 while Europe as a whole saw a marginal decrease to $3.4 billion, according to KPMG’s Venture Pulse Q1 2017. Reflecting the global trend, in the UK investment value was up but deal numbers were down. Investors backed larger, later stage deals as they looked to de-risk and fund predominantly proven ideas and startups that have demonstrated early traction.

“UK VC investment activity is at robust levels and this should be a cause for optimism in 2017.  It’s clear that, despite a dynamic political and economic environment, capital remains available for those UK startups that are able to articulate and demonstrate their value proposition,” Patrick Imbach, co-head of KPMG Tech Growth said.

“Whilst investor caution still prevails, start-ups in financial services, life sciences and biotech have been especially successful in attracting VC investment; we’ve seen very strong fundraising from Currency Cloud, Funding Circle and Atlas Genetics. Tech giants are also clearly confident in post-Brexit Britain with Apple and Snap having chosen London for their international headquarters. I expect 2017 UK VC investment to continue at a healthy level.”

The impact of diversity

The Pivigo research is the first of its kind that uses open data to assess the impact of diversity on funding from open data sets. However, it is not the first to demonstrate the impact of diversity on performance. The go-to 2015 report from McKinsey & Company showed that more diverse workforces perform better financially. The research found that businesses in the top quartile of ethnic diversity are 35 per cent more likely to have financial returns above their respective national industry medians. In the UK specifically, greater gender diversity on the senior executive team corresponded to better financial performance: for every 10 per cent increase in gender diversity, earnings before interest and taxes (EBIT) rose by 3.5 per cent – the highest uplift of all the data sets in the study.

“Research consistently shows that companies with more diverse workforces perform better financially,” Maggie Rodriguez-Piza, CEO of Funding London said. “At Funding London and the ‘London Co-Investment Fund’, we have found that the more diverse our companies, the more they are able to win top talent, improve their decision making, and produce better returns.”