Real Options in Technology Incubators
Posted: 4 Nov 2009
Date Written: 2005
Abstract
Real option theory is used to draw an analyticaland practical bridge between traditional R&D risk management and theemerging high-technology incubation sector. First, a review of importantdevelopment with regard to project evaluation and decision making in R&Doperations is offered. Next, the real option method is summarized, and its applicability beyond thefinancial industry to the R&D sector is demonstrated. The study thenintroduces a real option theory-based assessment tool for incubators, which maybe useful in managing investment risk and opportunity. This tool is based onresearch of several dozen incubators located in the United States, the UnitedKingdom, and continental Europe. The description of the tool considers real options at various stages of thebusiness cycle and at the macro and micro levels of incubation. The studyconcludes with the argument that good incubator managers intuitively apply realoption reasoning when making incubation decisions. (SAA)
Keywords: Investment decisions, Incubators, Risk management, Real options, R&D, Evaluation methods, Management decisions, High technology firms, Investment criteria
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