Engineering a venture capital market: lessons from the American experience

The venture capital market and firms whose creation and early stages were financed by venture capital are among the crown jewels of the American economy. Beyond representing an important engine of macroeconomic growth and job creation, these firms have been a major force in commercializing cutting edge science, whether through their impact on existing industries as with the radical changes in pharmaceuticals catalyzed by venture-backed firms commercialization of biotechnology, or by the their role in developing entirely new industries as with the emergence of the internet and world wide web. The venture capital market thus provides a unique link between finance and innovation, providing start-up and early stage firms - organizational forms particularly well suited to innovation - with capital market access that is tailored to the special task of financing these high risk, high return activities

Socio-technical transition processes: A real option based reasoning.

Using a real option reasoning perspective we study the uncertainties and irreversibilities that impact the investment decisions of firms during the different phases of technological transitions. The analysis of transition dynamics via real options reasoning allows the provision of an alternative and more qualified explanation of investment decisions according to the sequentiality of pathways considered. In our framework, flexibility management through option investments concerns both the incumbent and the future technological regime. In the first case it refers to ex-post flexibility management and in the second case to ex-ante flexibility management.

Decision support for firm performance by real options analytics

This paper develops a real options decision support tool for raising the performance of the firm. It shows how entrepreneurs can use our intuitive tool quickly to assess the nature and type of action required for improved performance. This exploits our estimated econometric relationship between precipitators of entrepreneurial opportunities, time until exercise, and firm performance. Our 3D chromaticity plots show how staging investments, investment time, and firm performance support entrepreneurial decisions to embed, or to expedite, investments. Speedy entrepreneurial action is securely supported with this tool, without expertise in econometric estimation or in formulae for real options valuation

Maximizing Intellectual Property and Intangible Assets: Case Studies in Intangible Asset Finance

As innovative companies struggle to raise funds, intellectual property and intangible assets are providing alternative ways of financing innovation. But greater awareness of them as an asset class is needed. Raising that awareness is the focus of a new report from Athena Alliance, Maximizing Intellectual Property and Intangible Assets: Case Studies in Intangible Asset Finance by Ian Ellis, a former U.S. Department of Commerce official specializing in intellectual property and international trade. The report outlines increasing, but still nascent, means of financing innovation based on these assets in public, private and venture capital markets. As industry has invested capital in research and development to develop new technology and advance other creative activities, intellectual capital has become a valuable asset class, according to the paper. In response, firms specializing in intangible-based financing are springing up, using them to raise capital for the next round of innovation.The paper details equity, equity-debt, debt, and sale-leaseback transactions, both private and public, that have helped companies raise capital, based on careful, rigorous analysis and conservative underwriting standards. For example, the author notes that in 2000, there were two public deals using royalty securitization, raising $145 million. In 2007-08,$3.3 billion was raised in 19 deals.Unlike some of the exotic financial vehicles, however, the financial products discussed in this paper are some of the most basic financing mechanisms in business. The innovation is in recognizing the value of intangible assets for corporate finance. These new financial firms are using traditional financial techniques in new ways to help innovative companies.But more should be done.One important step would be developing sound, industry-wide, underwriting standards, according to the report. For example, Small Business Administration (SBA) rules permit its loans to be used for acquisition of intangible assets when buying on-going businesses. Rules are unclear on whether those assets can be used as collateral. The paper recommends that SBA work with commercial lenders to develop standards for using intangible assets as collateral.The report builds on earlier Athena Alliance papers, notably Intangible Asset Monetization: The Promise and the Reality

A Real Options Perspective On R&D Portfolio Diversification

This paper shows that the conditionality of investment decisions in R&D has a critical impact on portfolio risk, and implies that traditional diversification strategies should be reevaluated when a portfolio is constructed. Real option theory argues that research projects have conditional or option-like risk and return properties, and are different from unconditional projects. Although the risk of a portfolio always depends on the correlation between projects, a portfolio of conditional R&D projects with real option characteristics has a fundamentally different risk than a portfolio of unconditional projects. When conditional R&D projects are negatively correlated, diversification only slightly reduces portfolio risk. When projects are positively correlated, however, diversification proves more effective than conventional tools predict.real options;portfolio analysis;research & development

Real Option Valuation of a Portfolio of Oil Projects

Various methodologies exist for valuing companies and their projects. We address the problem of valuing a portfolio of projects within companies that have infrequent, large and volatile cash flows. Examples of this type of company exist in oil exploration and development and we will use this example to illustrate our analysis throughout the thesis. The theoretical interest in this problem lies in modeling the sources of risk in the projects and their different interactions within each project. Initially we look at the advantages of real options analysis and compare this approach with more traditional valuation methods, highlighting strengths and weaknesses ofeach approach in the light ofthe thesis problem. We give the background to the stages in an oil exploration and development project and identify the main common sources of risk, for example commodity prices. We discuss the appropriate representation for oil prices; in short, do oil prices behave more like equities or more like interest rates? The appropriate representation is used to model oil price as a source ofrisk. A real option valuation model based on market uncertainty (in the form of oil price risk) and geological uncertainty (reserve volume uncertainty) is presented and tested for two different oil projects. Finally, a methodology to measure the inter-relationship between oil price and other sources of risk such as interest rates is proposed using copula methods.Imperial Users onl

Influence of Portfolio Management in Decision-Making

Purpose: Today’s manufacturing facilities are challenged by highly customized products and just in time manufacturing and delivery of these products. In this study, a batch scheduling problem has been addressed to enable on-time completion of customer orders in a lean manufacturing environment. The problem is optimizing the partitioning of product components into batches and scheduling of the resulting batches where each customer order is received as a set of products made of various components. Design/methodology/approach: Three different mathematical models for minimization of total earliness and tardiness of customer orders are developed to provide on-time completion of customer orders and also, to avoid excess final product inventory. The first model is a non-linear integer programming model whereas the second is a linearized version of the first. Finally, to solve larger sized instances of the problem, an alternative linear integer model is presented. Findings: Computational study using a suit set of test instances showed that the alternative linear integer model is able to solve all test instances in varying sizes within quite shorter computer times compared to the other two models. It has also been showed that the alternative model is able to solve moderate sized real-world problems. Originality/value: The problem under study differentiates from existing batch scheduling problems in the literature owing to the inclusion of new circumstances that are present in real-world applications. Those are: customer orders consisting of multi-products made of multi-parts, processing of all parts of the same product from different orders in the same batch, and delivering the orders only when all related products are completed. This research also contributes to the literature of batch scheduling problem by presenting new optimization models.Peer Reviewe

Risk pricing practices in finance, insurance and construction

A review of current risk pricing practices in the financial, insurance and construction sectors is conducted through a comprehensive literature review. The purpose was to inform a study on risk and price in the tendering processes of contractors: specifically, how contractors take account of risk when they are calculating their bids for construction work. The reference to mainstream literature was in view of construction management research as a field of application rather than a fundamental academic discipline. Analytical models are used for risk pricing in the financial sector. Certain mathematical laws and principles of insurance are used to price risk in the insurance sector. construction contractors and practitioners are described to traditionally price allowances for project risk using mechanisms such as intuition and experience. Project risk analysis models have proliferated in recent years. However, they are rarely used because of problems practitioners face when confronted with them. A discussion of practices across the three sectors shows that the construction industry does not approach risk according to the sophisticated mechanisms of the two other sectors. This is not a poor situation in itself. However, knowledge transfer from finance and insurance can help construction practitioners. But also, formal risk models for contractors should be informed by the commercial exigencies and unique characteristics of the construction sector

MCA4climate: A Practical Framework for Planning Pro-Development Climate Policy

MCA4climate is a major new UNEP initiative providing 1 Introduction practical assistance to governments in preparing their climate change mitigation and adaptation plans and strategies. It aims to help governments, particularly in developing countries, identify policies and measures that are low cost, environmentally effective and consistent with national development goals. It does this by providing a structured approach to assessing and prioritizing climate-policy options, while taking into consideration associated social, economic, environmental and institutional costs and benefits. In doing so, it seeks to counter the widely held perception that tackling climate change is costly, highlight the potential developmental benefits of addressing climate change and encourage action to that end