You can’t always get what you want: Hiring as an occasion for investors to structure startup teams

Research Seminar

Management & Human Resources

Speaker: Lisa Cohen

McGill University, Canada

Bernard Ramanantsoa room

Abstract:

Investors care about the structure and membership of the teams of the startups in which they invest. Yet, little is known about how investors might influence entrepreneurs to create the type of teams they want to invest in and the longer-term implications of this for startups. In this paper, we examine one way investors influence team structure—through involvement in startup hiring—and how entrepreneurs respond to these efforts. To understand how hiring is an occasion for investors to influence the structure of startups, we analyze observations and interviews with 138 startup investors, entrepreneurs (founders, hiring managers), employees (from intern to CEO), and experts in over 100 organizations on the hiring process. We follow the development of eight of these startups for two years to understand the longer-term effects of investor interventions in hiring. We identify a general process by which investors leverage their involvement in hiring to influence the structure of startup teams: investors come to common and consistent expectations about team composition and structure; they communicate these expectations to entrepreneurs; and most startups embrace investor expectations and collaborate with investors to meet these expectations. For the most part, this results in startups that take on common initial imprints that last into the future. However, we document two exceptions to this process. The pattern differs for expectations around demographic diversity and for experienced entrepreneurs. In unpacking hiring as a mechanism through which investors influence the structure and composition of startup teams, we contribute to literatures in several areas. We build a process model that explains how it is that investors influence startup team composition and structure that could be extended to explain other areas of investor influence. It also provides some initial evidence about when this process will lead to met expectations and when it will not. It is not only about whether the expectation makes sense or not. It is about the content of that expectation and the nature of those receiving it. Further, we add to recent work on how the process of hiring works.  It is not a process that is limited to formal interactions between job candidates and hiring managers. It is a series of interactions that can produce much more than bringing people into the organization and it can influence how these nascent organizations get structured and grow.  In this case, it builds relationships between investors and entrepreneurs and build organizational structures and processes in the longer-term.  Finally, we add to understanding of why diversity targets may not be met in all situations.

Authors: