Investors influence HR practice in small businesses

Angel investors tended to inspire an operational HR focus, researchers found

Small businesses that have received investment tend to adopt the HR and management practices of their external backers, according to research from Trinity Business School.

Companies that receive backing from angel investors with a high net worth, for example, might use HR to focus on improving efficiency of operations, the researchers said.

Those backed by private equity firms, meanwhile, might take a more strategic approach in a bid to accelerate growth and boost the return on investment for their backer over a short period. Researchers also found that those backed by government venture capital tended to share this approach.

The study, undertaken by Francesca Di Pietro, Sinéad Monaghan and Martha O’Hagan-Luff from Trinity Business School, looked closely at seven small, founder-led Irish firms operating in the agrifood industry.

The companies that received corporate venture capital, where a larger company takes a smaller stake in a growing business, tended to adopt either strategic HR practices or look towards “transformational practices”, which led them to change the direction of their business.

Sinéad Monaghan, associate professor of international business and global strategy, said that HR strategies were an “integral” part of attracting funding and achieving growth.

“Our study demonstrates the relationship between external financing and internal human resource management and provides insights for firms looking to further accelerate their growth trajectory,” she said.

Francesca Di Pietro, assistant professor in business strategy, added: “Firms should consider how the decision to take on investment will influence company’s internal dynamics, such as HR management, and find ways to maximise the value of their relationship with investors.”

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