III. DISRUPTIVE INNOVATION
Start-up can leverage its technological and market capabilities to capture growth opportunities through innovation. Disruptive innovation is one of the strategies that help start-up to create and sustain successful growth [10]. Disruptive innovation creates new growth business that disrupted the progress of established technologies in
mainstream market [11]. To create new business that has more chance of success, the
start-up should reconfigure existing components available in the market and applies to new market segment, rather than invent the whole new product to new market segment [12].
IV. INVESTORS’ DECISION MAKING
A. Potential for Growth and Disruptive Innovation
Disruptive innovation creates growth potential by focusing technology capabilities
and market capabilities on new-market and low-end market [13]. Start-ups that contain disruptive innovation have more chances to achieve potential or target return. The higher the probability to achieve target return of star-up, the higher opportunity perception of investors become, and therefore, there is higher propensity to invest in the start-ups [14].
B. Security and Affordable Loss
Matching investor preference with characteristics of start-up is very important in financing start-up, especially for individual investors such as business angels.
In general, investors in the start-up evaluate and making decision to invest based on
indicative factors that could help predict ability to survive and potential of growth [7].
The ability to survive is a reasonable factor that investors with safety-first in mind would consider due to the fact that there is always a chance that the any investment may become lost [15].
Affordable loss was proposed as one of the major criteria for entrepreneur in making decision to plunged into new venture [16]. Informal investors or business angels were similar to entrepreneurs in term of business creation or co-creator [17]. Therefore, affordable loss could be applied to both entrepreneur and business angles as decision making criteria to estimated what they might be able to put at risk and possible to lose in order to plunge in to investment in start-up. In order to increase amount that investors prepare to lose, entrepreneurs should focus to plan to accept risk as inevitable and try to minimize downside loss in order to provide security for invested capital from investors.
C. Security-Potential and Aspiration
Decision making tool that combine focusing on security and potential was proposed by Lopes and Oden [18] as SP/A (security-potential/aspiration) theory which incorporate the analysis of investors seeking for security from its investment, potential of gain and aspiration level in avoiding poverty or seeking wealth. Investors will select the choice options that are evaluated based on their probability of reaching aspiration level (or target or goal). This study proposed to use SP/A as dual criteria of security and potential because security level ties to affordable loss and its probability of loss concept of effectuation [19] and potential level also ties to disruptive innovation. In addition, the use of aspiration level as single parameter to determine whether the start-up could provide outcome higher than aspiration/target/goal or not which such parameter could be used to describe propensity to invest of investors in start-up companies.
The preferences for upside potential and limiting downside risk are probably the most important to individual investors when investing in start-up because they cannot diversify the risk out in capital market. Therefore, it is important for start-ups to structure their product structure or business model to be in-line with tools and criteria that investors are using so that they can reflect valuation that match with investors’ behavior in making choice under uncertainty.