Founding Team Diversity and Team Change as Predictors of Investors' Attraction toward Web Business in the US and Japan

Abstract

Previous research has shown that investors pay close attention to founding teams’ diversity when evaluating investments in startups. However, because of the differences in the investment environment between Japan and the U.S., we expected that in Japan, investors may decide to invest for different reasons. Specifically, we predicted that in the U.S., investors would jump in more quickly at the startup stage if the founding team were more diverse. In contrast, in Japan, we predicted that investors would be more cautious and more likely to invest after management teams have been optimized through changes in team membership. To test these hypotheses, we conducted a web survey targeting entrepreneurs in the web and mobile industry in Silicon Valley and the Tokyo metropolitan area. The results supported our hypotheses. In the U.S., the number of investments startups received was strongly associated with initial team diversity but not with changes in team membership. In Japan, however, the number of investment was more strongly associated with experiencing changes in membership and not with team diversity.