Skill heterogeneity in startups and its development over time

Abstract

We study how startup teams are assembled in terms of team member human capital characteristics. To this end, we derive a statistically motivated benchmark for new venture team heterogeneity in terms of observed team member characteristics to generate stylized facts about team member diversity at startup and how it evolves as the new venture matures. We use the population of Danish startups that were established in 1998 and track them until 2001. Main findings are that teams are relatively more homogeneous at startup compared to our benchmark, indicating that difficulties associated with workforce heterogeneity (like affective conflict or coordination cost) as well as “homophily” (people’s inclination to bound with others with similar characteristics) may overweigh the benefits of heterogeneity. While workforce heterogeneity does increase over time, the increase is smaller compared to our benchmark but substantially larger than if team additions and replacements had the same characteristics as the initial team members.