Evaluating the expected growth opportunities of start-up companies–A multi-stage compound real options approach

• Main Authors: Hsu-Tsan Hu, 胡旭燦
• Other Authors: Yang-Chung Lu
• Format: Others
• Language: zh-TW
• Published: 2001
• Online Access: http://ndltd.ncl.edu.tw/handle/42141034491035930491

碩士 === 銘傳大學 === 金融研究所 === 89 === Traditional tools, such as discounted-cash-flow (DCF) to deal with the classical subject of resource allocation under certainty fail to give a proper evaluation for new venture. Due to the fact that a start-up company faces many unsure things affecting its future returns, an ability to capture the highly volatile factors of such a company makes an approach powerful in evaluating start-up one. Therefore, we attempt to evaluate expected high-growth opportunities commonly embedded in new venture through real options. Under the structure of knowledge economy, we construct the evaluation model based on the code value of start-up companies, ”knowledge stock”, instead of that based on ”cash flow”. We apply real options to evaluate the expected growth opportunities of start-up companies; furthermore, to combine them with compound options according to the multi-stage development qualities of new venture. To consider different definitions of strike price between compound options and underlying options further, we develop an appropriate evaluation model for expected growth opportunities. In this thesis we contribute to the field of start-up corporate valuation by developing a multi-stage compound real options model, which captures those characteristics of new venture: (1) multi-stage growth process, (2) uncertainties about the future value from the investment, (3) jump nature caused by breakthrough of R&D, and (4) uncertainties about the required investment cost. Through the use of Monte Carlo simulation approach, we get a well solution to compound options and promote it to solve the multi-stage compound real options evaluation model. The multi-stage compound real options approach turns out to be tractable for evaluation of new venture used to be short of principle.