A real options framework for CVC Investments under technological uncertainty
Résumé
This paper studies the optimal timing of corporate venture capital in- vestments and subsequent acquisition decisions under technological uncer- tainty. We consider a large firm interested in a technology being developed by a start-up. The firm has the option of investing in the startup at an early R&D stage through a CVC, or to wait until the technology is mature before acquiring it. While an early CVC allows the firm to start integrat- ing the new technology, it induces the risk of losing the premium if the technology does not develop as expected. We formulate the problem as a real option problem where the firm aims at maximizing its profit at t = 0, considering possible CVC and acquisition decisions in the future. We solve the problem using a two-level dynamic programming algorithm and show the optimal firm decision.