Built to Last: A Human Capital Resource Formation Perspective on Diversity and New Venture Survival

Abstract

New venture team diversity and entrepreneurial success or failure remain critical topics in the field. Utilizing a strategic human capital resources framing, this study leverages data from the Kauffman Firm Survey to assess the degree to which racial diversity and human capital within the founding team affect new venture survival. In a study of 2,459 ventures, results indicate that industry-specific human capital (ISHC) moderates the relationship between racial diversity in the founding team and hazard of failure. The relationship is such that for teams with a high level of ISHC, racial diversity helps reduce the likelihood of entrepreneurial failure. Similar results did not hold for generic human capital (GHC) operationalized as percentage of team members with a bachelor’s degree; however, an effect was demonstrated when the measure used the percentage of team members with a master’s degree or higher. In addition, the three-way interaction between ISHC, GHC and racial diversity is significant, suggesting that teams benefit most from diversity when human capital stocks are high in the team. This result supports human capital resources theory by demonstrating the utility of the emergence of complex unit-level resources within the new venture team. Implications suggest that the make-up of the founding team plays a role in venture performance and that potential challenges associated with diverse teams may be countered with higher levels of human capital.