When entrepreneurs pitch “disruptive startups,” they’re 22 percent more likely to receive funding, but receive 24 percent less investment than less risky ventures. That’s because disruptive startups have the potential to bring investors colossal returns—or result in complete failure, according to Timo van Balen, a lecturer at the Rotterdam School of Management at Erasmus University in the Netherlands; Murat Tarakci, associate professor of innovation
management at Rotterdam; and Ashish Sood, an associate professor of marketing in the School of Business at the University of California Riverside.
The researchers analyzed the data of 918 enterprises from Start-Up Nation Central, a private nonprofit that has collected data on Israeli startups since 2013. By comparing the characteristics of each profile’s vision statement with how much funding the venture secured, they found that businesses with disruptive potential were more likely to receive funding, but received about US$87,000 less in the first investment round and $361,000 less in the second investment round.
Given this finding, founders should be “judicious” in the way they phrase their pitches to investors, says van Balen. “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,” he says. “But if it’s more important to attract bigger investments, it might be smart to avoid communicating a disruptive vision.”
Read “Do Disruptive Visions Pay Off? The Impact of Disruptive Entrepreneurial Visions on Venture Funding,” published July 16, 2018 in the Journal of Management Studies.