Exploring the relationship between functional diversity and growth in VC-backed new technology ventures

Purpose: Despite significant research attention to top management team diversity, the potential influence of other employees' diversity on venture growth at different maturity stages such as middle management teams and nonmanagerial employees at the base of the organizational hierarchy remains largely overlooked. This study explores this relationship in new technology venture development, with a focus on the influence of functional skills diversity across different organizational levels and maturity stages. Design/methodology/approach: This study uses a linked employer–employee dataset covering new technology ventures in the digital industry that spans from 2010 to 2020. The sample includes 296 VC-backed new ventures located in the greater Paris (France) area. Through a problem-solving lens, the study examines functional skills at various organizational levels, including 5,243 top managers, 10,274 middle managers and 29,306 nonmanagerial employees. Findings: Results indicate that placing exclusive emphasis on top-level managers could lead to incorrect assignment of diversity effects as such effects are likely shared with lower organizational levels. In addition, the findings demonstrate that the diversity–venture growth relationship varies across new ventures' funding stages, with a notably stronger correlation in the late stages of financing. Practical implications This study demonstrates that promoting functional diversity across all organizational levels, not just top management, may boost firms' growth. Furthermore, the effectiveness of functional diversity varies depending on the firm's financing stage. Originality/value: This study constructs a multilayered organizational framework to explore the relationship between diversity and new technology venture growth, using a fully reproducible skills diversity classification methodology that is applicable for future investigations.