Search
Close this search box.

Investors prefer ‘disruptive’ start-ups, but give them less money

Timo analysed data of 918 start-ups from Start-Up Nation Central, a private non-profit organisation that has collected data on all Israeli start-ups since 2013. He compared the characteristics of each profile’s vision statement, aimed at investors, with how much funding the venture secured.
content strategy

Entrepreneurs pitching ‘disruptive’ start-ups are 22 percent more likely to get funding, but receive 24 percent less investment than less risky ventures, according to new research from Rotterdam School of Management, Erasmus University (RSM). Contributor Timo van Balen, a researcher – RSM.

A disruptive start-up, breaking away from existing products, services and business models, can potentially bring colossal returns for investors. But these ventures are also risky, with a considerable possibility of failure, says Timo van Balen, a researcher at RSM.

Timo analysed data of 918 start-ups from Start-Up Nation Central, a private non-profit organisation that has collected data on all Israeli start-ups since 2013. He compared the characteristics of each profile’s vision statement, aimed at investors, with how much funding the venture secured.

Alongside fellow researchers, Murat Tarakci of RSM and Ashish Sood of the University of California Riverside, he discovered that increasing the communication of a start-up’s disruptive vision improved the odds of receiving funding by an average of 22 percent. But it cut the amount invested by an average of 24 percent. This amounted to $87,000 less in the first investment round and $361,000 less in the second investment round.

Timo says: “Entrepreneurs increasingly talk about ‘disruption’, framing their products, technologies and ventures in this way to secure financial capital. We found that emphasising this image of a venture’s potential market disruption does increase the odds of receiving first-round funding. This is because the promise of being a ‘game-changer’ fosters investors’ expectations of extraordinary returns on their money. However, a highly disruptive venture’s future success is often uncertain, which deters investors from making large speculative investments into it.”

The research suggests that entrepreneurs can craft the communication of their vision to help achieve their funding goals.

Timo says: Despite the temptation to pitch a venture as disruptive, entrepreneurs should be judicious with the ways they attempt to secure funding. If getting an investment of any size is very important, pitching a highly disruptive vision might be key to grabbing the right people’s attention. But if it’s more important to attract bigger investments, it might be smart to avoid communicating a disruptive vision of the effect of your start-up.”

Read more

Latest News

Read More

The legal and moral imperative to support neurodivergent employees

19 May 2024

Newsletter

Receive the latest HR news and strategic content

Please note, as per the GDPR Legislation, we need to ensure you are ‘Opted In’ to receive updates from ‘theHRDIRECTOR’. We will NEVER sell, rent, share or give away your data to third parties. We only use it to send information about our products and updates within the HR space To see our Privacy Policy – click here

Latest HR Jobs

Assistant Director of Human Resources Claridges We are seeking an exceptional Assistant Director of Human Resources to join the Claridges team. Set in the heart

University of Exeter – Human ResourcesSalary: The starting salary will be from £26,444 on Grade D, depending on qualifications and experience

The British Academy – HR TeamSalary: £33,545

As the Head of Strategic Workforce Transformation, you will be responsible for developing and implementing comprehensive strategies to ensure we have the right… £58,972 –

Read the latest digital issue of theHRDIRECTOR for FREE

Read the latest digital issue of theHRDIRECTOR for FREE