The recent changes to immigration rules in the UK have prompted some entrepreneurs to fear that they may be forced to leave the country as they don’t pay themselves enough to meet the new earnings criteria. For a country that actively wants to attract and encourage startups, this would be a considerable mistake.
It’s pretty well known that immigrants make up a disproportionate share of entrepreneurs. This is partly because their lack of familiarity, and even access, to the domestic labor market makes starting a business often the only route open to supporting oneself. It’s also partly because they bring fresh thinking to their new home and can apply what was commonplace in their homeland in a new environment.
Diversity wins
This is evident at the Maria 01 startup hub in Helsinki, Finland. Of the 180 startups currently using the facility, there are over 45 different nationalities represented, with this level of diversity considered a key factor in the success of the Finnish startup scene.
“International capital investors are increasingly interested in Finnish innovations and Helsinki’s attractiveness as a startup scene is shown in Startup Genome’s report, according to which Helsinki is tied for 31st place in the global ranking of startup ecosystems,” says Hanna Nylund, Chief Impact Officer at Maria 01. “However, talent shortage poses a threat and Maria 01 highlights the importance of attracting foreign talent in maintaining and growing the startup ecosystem in Finland. To ensure that the startup ecosystem keeps growing in Finland and supports our economic growth, we need to make sure that we are doing what we can to attract international talent to Finland.”
A diverse founding team has numerous benefits in terms of ultimate success of the venture. Research from HEC Paris shows, for instance, that an ethnically diverse founding team can be beneficial to a startup in terms of how it functions. The research found that an ethnically diverse founding team was generally far more successful in terms of raising funding than teams with only white founders. The authors also found that ethnic diversity had a positive impact on venture performance in certain sectors and countries.
This should perhaps be no surprise, as research from Temple University found that startups with at least one immigrant founder were more likely to be innovative, both in terms of the products they produced and the business strategies they deployed to bring them to market.
Cashing in
The value of a diverse founding team was also reflected in recent research from the University of Toronto, which shows that immigrant founders are also more likely to achieve successful exits, either via an initial public offering (IPO) or via an acquisition.
Not only was an exit more likely, however, but there were also differences in how and when founders decided to cash in. The authors explain that exits typically come either when the firm is just beginning to generate sales or when it has already achieved a degree of traction in the market.
Now, remember, immigrant founders are more likely to be innovative, both in terms of the products and services they produce and also their route to market. This means they’re more likely to have a high growth trajectory, which, in turn, means that they’re also more likely to seek an exit during this initial revenue stage than they are to wait until the business has matured and is profitable.
Exit music
The researchers looked at nearly 600 Israeli tech startups, each of whom had exited in some way. Of the cohort, just over 10% had immigrants in the founding team. Those startups with immigrant founders were disproportionately likely to achieve an exit either via acquisition or IPO, however.
While the findings are a case of correlation rather than perhaps causation, the researchers are nonetheless confident that diverse founding teams do nonetheless increase the likelihood that the startup will achieve success, at least in terms of exiting successfully.
Of course, securing an exit is but one measure of entrepreneurial success, and research from the University of Amsterdam shows that a diverse founding team can also have benefits in terms of equity and inclusion. The study looked at the gender diversity of founding teams and the subsequent makeup of the workforce as the company grew.
The researchers found that when women were more represented among the founding team, it was more likely that the workforce would achieve a more equitable gender mix as it grew.
“Companies may sometimes not see enough women entering their candidate pools and quickly conclude that women are just not there to begin with,” they explain. “However, employers might also not see qualified women because these women just won’t apply to workplaces with a bad diversity track record. If you were a woman, would you want to work for a company where you are by far in the minority? Some do, most don’t.”
Diversity matters
Diversity can often fall down the list of priorities for founders as they instead have a laser focus on things like costs, investment, and growth. These studies remind us that focusing on diversity from the very beginning can yield very tangible benefits for the business as it grows.
“This aspect is neglected until it becomes a problem beyond repair. But it can become an issue even in the early stages,” the researchers explain. “It takes several recruitment rounds to straighten out the difference between 5 men and 1 woman. You can imagine how much more difficult this gets if you start working a year later trying to address the difference between 50 men and 10 women.”
The composition of the founding team is obviously incredibly important in terms of the skills mix contained within it. Its diversity is also something that should also be considered very carefully. From a policy perspective, if a nation truly wants to be the next “startup nation”, then serious consideration should be given to removing any restrictions that might stand in the way of immigrant founders.
