Recently, the lack of diversity in startup leadership has been criticized by public figures and institutional investors as a signal of inadequate governance. And yet, little is known about the historical changes in gender diversity in entrepreneurial firms. Using a unique database of the gender composition in all entrepreneurial firm IPOs from 1990 to 2020 in the USA, we examine these changes. The IPO is a particularly interesting moment in an entrepreneurial firm’s evolution, as governance evolves from a private firm directed by venture capitalists, with their beliefs about what a good management team is, into a public firm with owners who are institutional investors with potentially different goals and beliefs. Grounded in signaling theory, our expectation is that the changes in public investors’ view of proper governance will result in changes in the gender in personnel added immediately prior to the IPO and that IPO teams will be more diverse than Early Teams when the firm was younger and controlled by its private investors. We suggest that the private investors such as venture capitalists have different mental models of what “good” members or top management and the board of directors are. We expect these models are particularly influential in the digital technologies where a “tech bros” model is dominant, and thus there is little “space” for women leaders, particularly in contrast to the university research-based biotechnology industry, which has not experienced such direct criticism. We find support for our propositions, and also document an increase in women directors and top management team members over time.
One of the established findings in the spinout literature is that founders with prior industry experience assemble larger entrepreneurial teams and create better‐performing startups. We examine the role of prior industry experience in the startups' next stage—its hiring of new employees. We tackle two empirical challenges—the mutual aspect of hiring and the effect of unobserved variables on employees' earnings using a two‐sided matching model. Our results reveal that even firms founded by entrepreneurs without industry experience can attract new employees with such experience if the founders start with a large entrepreneurial team. Further, startups provide new hires with an earnings premium for their industry experience. Our approach illustrates the benefits of matching models over traditional regressions.
Growing startups face the question of who to hire and how much to compensate the new hires. Simultaneously, prospective new hires ask which startup to join and how much their salary will be. We explore these questions using a novel method that tackles the mutual selection process. In the context of five technological manufacturing industries, we find that having industry experience within founding teams may not be necessary to attract new hires with high quality if the startup can signal its own quality through other means such as having a larger founding team. Our results indicate that startups prefer employees with industry experience for which startups offer a wage premium. Thus, employees seeking startup employment benefit from gaining industry experience prior to joining a startup.
A video abstract is available at
- NSF-PAR ID:
- 10386472
- Publisher / Repository:
- Wiley Blackwell (John Wiley & Sons)
- Date Published:
- Journal Name:
- Strategic Management Journal
- Volume:
- 44
- Issue:
- 1
- ISSN:
- 0143-2095
- Page Range / eLocation ID:
- p. 141-170
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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