Does team ethnic diversity influence the amount of capital startups raise?
After analysing 1005 startups from Techstars researchers show a positive linear relationship between startup team ethnic diversity and total capital raised.
Having a diverse team, in terms of functionality, is a key necessity in any business pursuit. Nonetheless, according to entrepreneurship literature, little is actually known about the influence of ethnic diversity on founding team performance outcomes.
To help answer the question, researchers Sean Wise, Sepideh Yeganegi, and André Laplume analyze results obtained from a sample of 1005 startups that participated in the Techstars accelerator program between 2007 and 2018. One of the main advantages of using such a sample is that every Techstars startup receives a similar initial investment. Therefore, each startup is given a similar starting valuation and capital investment, suggesting that the startups are on a somewhat similar starting level at the beginning of the program. Investment data was obtained from Crunchbase and Linkedin, while founders’ ethnicity was obtained from Ethnic Technologies.
As the authors conclude, the results show a robust positive linear relationship between startup team ethnic diversity and total capital raised. Ethnic diversity may not only increase innovation and problem-solving by mixing individuals with different perspectives, but also create access channels to a wider network that can be potential sources of ideas and resources.