How Investors Shape Who and How Startups Hire

Abstract

Early hiring decisions have important immediate and enduring effects on developing startups. Yet startups often struggle with hiring because they lack the resources, networks, and routines that enable effective hiring. Investors can help startups overcome these deficits. To understand how investors help startups overcome this struggle, we analyzed interviews and observations with startup investors, founders, hiring managers, actual and prospective employees, and other experts. We find that the advice and action of angel investors, VCs, accelerators, and other investors influences startup hiring. We show that investors have clear expectations and that these are made known to entrepreneurs through both targeted and diffuse means. For the most part, the targeted influence leads to the implementation of specific practices in startups where investment has already been made and encompasses four distinct spheres: why there should be a hiring plan, how to hire, who to hire, and what jobs to hire for. The diffuse influence happens when without targeting a specific startup, investors and others in the ecosystem communicate investors’ expectations around team composition: e.g., demographic and skill diversity as well as work commitment. In anticipation of these investor expectations, founders make specific decisions about hiring. We also saw evidence that hiring-focused interactions between entrepreneurs and investors affected more than these immediate hiring outcomes. By guiding their hiring, investors enhanced startups ability to attract additional investments in subsequent rounds of fund raising.