Venture capitalists and their role in startup funding

¶ … Capitalism

Many venture capitalists say that the best investment opportunity is one that is a high threat [meaning can be disruptive] to a market/industry and has many or high barriers to entry. Compare this to Table 2.2 in Chapter 2 of Bateman and Snell. This kind of venture can be very risky. A disruptive technology can be described as something [material, method, process, device] that ends the 'good life' for whatever came before. It has the potential turn an industry on its ear.

Why do you think an opportunity that fits this description would be considered a 'good' investment opportunity?

Although risk minimization and management is the stress of the Bateman and Snell text, an individual seeking to make a substantial profit that disrupts existing systems can dominate the newly created market and 'make a killing' in terms of a profit margin, by killing an old material, method, process, or device, and dominate the previously existing market with a new technology, now with little competition. For example, cellular phones disrupted the entire landline system of communication, Microsoft disrupted the existing market for computers and word processing and typing programs, rending computers ubiquitous to business and personal life, and Amazon similarly decimated the brick and mortar book industry. Such an opportunity must be radical and transforming and break all molds to succeed, so that individuals and institutions must literally adopt the new from the ground up.

How can an organization use the knowledge of what would be disruptive to its market/industry to respond to the environment or competitive advantage? What strategies might be appropriate?

Strategies that respond to consumer needs, such as a desire to save time are effective in terms of marketing. Also, strategies that require entire replacements of the old technology, despite initial consumer resistance can be effective, as the new system, like a new computer system becomes locked into previously existing business standard operating procedures and the routines of modern home and family life.

Provide an example of how a disruptive 'threat' has been/is being turned into an opportunity. Use your experience or observation. Do not reveal any proprietary information.

A disruptive threat in the form of Amazon's online retailing of books has been turned into an opportunity by some book retailers who use the new venue to dispense information about their authors, and who use Amazon rankings to encourage sales, as in the case of the Harry Potter books, where buying the first copies off of Amazon becomes a kind of status.