Back in June 2020 following the worldwide shock at the death of George Floyd, many law firms set out a commitment to address systemic barriers profoundly impacting racial and ethnic minorities. Like others, we reaffirmed our commitment to combatting social and economic discrimination both in the US and UK. To that end we made a significant pro bono hours commitment over three years. 

Whilst many of the law firm initiatives focused on discrimination, we wanted to go further and actively seek to support wealth generating opportunities for minorities communities. As the Black British Institute has said, by promoting and applying positive inclusive economics, we have a better chance of achieving social mobility and the levelling up of societies. Our focus through our impact economy practice HL BaSE has been supporting a more equitable investment market. 

Accessible legal advice is a key part of that. Without access to decent legal advice on both sides of the table the imbalance of power inherent in a situation where one party is investing in another is always going to be magnified. Yet frequently funding and programmes of support for SMEs looking to scale and attract investment don’t consider legal advice as an integral part of the solution. It’s left to chance as to whether investees might be able to secure legal advice and where relevant, the equivalent value of pro bono support is rarely factored in as a cost of an inclusive investment ecosystem.

This historic approach is partly what makes the work of the Growth Impact Fund (GIF) so refreshing.  

“Access to quality legal support and guidance is often a huge barrier for so many entrepreneurs, particularly those from marginalised backgrounds, especially when they are accessing investment for the first time,” said David Bartram, director of delivery and investment at UnLtd.  

In response to barriers like this, UnLtd alongside Big Issue Invest and Shift, set up GIF to support underrepresented founders creating positive social or environmental impact through their businesses. The purpose of the fund is not just to invest in businesses led by diverse leaders and teams committed to helping tackle inequality but to transform the social investment market. And according to the Adebowale Commission on Social Investment this is a transformation that is still much needed. The commission found that despite £600m of public investment since 2010, the social investment market remained unchanged and that disadvantaged groups, such as Black-led social enterprises, continued to be underserved.

Hogan Lovells’ impact economy practice HL BaSE partners with GIF to provide legal advice to its investees and over the last year has represented five social enterprises receiving more than £1m in investment. 

Jack Dyrhauge, founder of inclusive recruitment service Neuropool., said: “As a neurodivergent entrepreneur the team made the investment process a very smooth experience for me. With their support throughout all the negotiations with legal queries it was crucial to my decision making throughout the investment.”

More than half a million autistic adults in the UK are unemployed, a huge figure which reflects the barriers faced by neurodivergent people trying to enter the workforce. Neuropool works with employers and universities to recruit neurodivergent talent and has helped more than 200 neurodivergent professionals gain employment, building a community of more than 12,600, which it supports with employment mentoring and accelerator programmes. 

Diverse-led social businesses offer some of the most effective solutions to addressing inequality and are often well placed to support underrepresented communities. Yet Social Enterprise UK’s State of Social Enterprise 2019 survey found that Black and ethnic minority-led social enterprises were applying for and receiving finance at one quarter the level of the wider social enterprise sector. This inequity tracks to investment in SMEs across the board. 

As an entrepreneur, Cyril Lutterodt, co-founder of Black Seed, had first-hand experience of the historic underfunding and over-mentoring of Black British founders. His own experience and the realisation that this was a systemic issue was the impetus for him to launch the Black Seed fund to invest in diverse talent. With only 0.24% of venture funding reaching Black British founders in the last decade, Black Seed is well positioned to make the most of this missed opportunity. HL BaSE advised Black Seed on the £5m first close if its inaugural fund.  

Co-founder Karl Lokko explained that Black Seed is on a “mission to drive meaningful change and democratise access to VC funding for Black founders in the UK. The barriers to entry for emerging fund managers who look like us are extremely high. It takes the collective support of the wider ecosystem to allow us to be audacious enough to challenge the status quo”. 

Funds like GIF and Black Seed provide an example of how business as usual can and should evolve to ensure a fairer investment market. Both respond to the lack of diversity among cheque writers as well as investees. European and US data suggests that low levels of VC investment in female founders (around 2%) are mirrored by a similar lack of female representation amongst angel and VC investors (5-15%).  This has to be a missed opportunity when you consider that in the UK £250bn of new value could be added to the economy if women started and scaled new businesses at the same rate as men. In response to this issue, GIF’s impact strategy champions a model where the fund team and advisors represent the entrepreneurs they seek to invest in. 

The Alison Rose Review of Female Entrepreneurship highlighted the need for governments to adopt large-scale policies to genuinely transform the landscape for female entrepreneurs. Change is slow, which is frustrating given the evidence that an inclusive approach is good for business and good for the economy. 

Steps to level the playing field don’t always seem to be moving in the right direction, for example Social Investment Tax Relief was designed to encourage investment in social enterprises but as of April last year is no longer available. The scales are tipped against businesses that tackle the social issues that mainstream business is ignoring, they are weighed against underrepresented founders and entrepreneurs, and without intervention it is hard to see how the current imbalance of capital distribution will shift at the speed required.

Fenella Chambers is a counsel in Hogan Lovells’ social impact practice. For more information visit https://www.hoganlovellsbase.com/