Investigating the Effect of Ethnic Diversity of Iranian Startup Team Members on the Investment Capital Raised (Study Case: Startups at Dubai Gitex Exhibition)

Document Type : Research Paper

Authors

1 Prof., Department of Management, Faculty of Economics, Management and administrative sciences, Semnan University, Semnan, Iran.

2 Ph.D. Candidate, Department of Human Resources Management, Faculty of Economics, Management and administrative sciences, Semnan University, Semnan, Iran.

Abstract

Objective
Startups around the world boast diverse workforces, and forecasts suggest that future workforces will predominantly comprise minorities, including women, immigrants, and individuals from varied ethnic and racial backgrounds. Iranian startups are similarly diverse, featuring people from an array of ethnic and cultural backgrounds. Raising capital is crucial for the growth and development of innovative startups, and the abilities of startup founders are believed to significantly influence this process. This study aims to examine the impact of ethnic diversity among Iranian startup founders on the amount of investment capital raised, specifically at the Gitex exhibition in Dubai.
Methods
This research adopts a quantitative approach, is applied in nature, and employs descriptive data collection methods. It focuses on founders of 20 startups who participated in the Innovation and Prosperity Fund call by the Presidential Scientific Institution from 2020 to 2022, examined in a census format. To categorize ethnic diversity, we utilized Shannon's index. The study then explored the impact of ethnic diversity on capital raised using the Pearson correlation method, regression analysis, and SPSS software. Control variables included the size of the startup teams at the exhibition (at Series A funding level), the age of the startup (considered from the year of establishment to up to 10 years), and the founders’ experience in startups (average years of experience before and after joining the startup, within a 0 to 15 years range).
Results
The results reveal that the ethnic diversity of Iranian startup founders significantly influences the amount of investment capital raised, considering control variables such as the startups' age, team size, and founders' full-time experience. The regression coefficient of 0.892 between ethnic diversity and capital raised underscores the positive and significant effect of diversity. Furthermore, we found a positive and statistically significant correlation between ethnic diversity and capital raised, indicating that a one-unit increase in ethnic diversity correlates with a 14% increase in total attracted capital.
Conclusion
This study contributes to management and entrepreneurship literature by supporting the "diversity as an advantage" theory and challenging the "diversity as a disadvantage" perspective in the context of raising startup capital. It suggests that investors should view diversity as a beneficial factor in startups, leading to more effective investment decisions. The findings align with cognitive theory and information processing, indicating that a diverse team, with varied cognitive models, may enhance innovation and problem-solving capabilities. Additionally, the results resonate with the theory of social networks and social capital, emphasizing the resources available through a network of diverse relationships. However, the findings contradict social identity theory and its related social classification theory, which argue that ethnic diversity can heighten conflict and reduce the efficiency of information exchange, cohesion, and trust, thereby negatively impacting performance. These contradictions offer intriguing avenues for future research.

Keywords

Main Subjects

References

 
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Journal of Public Administration
Volume 15, Issue 4
2023
Pages 751-765

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