同济经管 Theory In Action TONGJI SEM Financing New Technology Ventures -Large firms can fund innovation internally;new start- ups must often obtain external financing. -In first stages of start-up and growth,entrepreneurs may have to rely on family,friends,and credit cards -Start-ups might be able to obtain some funding from government grants and loans. -If idea and management are especially promising, entrepreneur may secure funds from "angel investors" (typically seed stage and <$1 million)or venture capitalists(multiple early stages,>$1 million). EOUIS 21
21 Financing New Technology Ventures – Large firms can fund innovation internally; new startups must often obtain external financing. – In first stages of start-up and growth, entrepreneurs may have to rely on family, friends, and credit cards. – Start-ups might be able to obtain some funding from government grants and loans. – If idea and management are especially promising, entrepreneur may secure funds from “angel investors” (typically seed stage and <$1 million) or venture capitalists (multiple early stages, >$1 million). Theory In Action
同济经管 TONGJI SEM Quantitative Methods for Choosing Projects Commonly used quantitative methods include discounted cash flow methods and real options. -Discounted Cash Flow (DCF) A8 Net Present Value (NPV):Expected cash inflows are discounted and compared to outlays. FIGURE 7.3 Example of Present Value of Future Cash Flows $1,000 s1,000 $1.000 s1.000 <1/i.06 $934.40 ×1/1.06 5890.00 ×1/1.06 5839.62 ×1/1.064 3792.09 $3,465.11 Total present value,discount rate =6% EQUIS 22
22 Quantitative Methods for Choosing Projects Commonly used quantitative methods include discounted cash flow methods and real options. – Discounted Cash Flow (DCF) • Net Present Value (NPV): Expected cash inflows are discounted and compared to outlays
同济经管 TONGJI SEM Quantitative Methods for Choosing Projects Internal Rate of Return (IRR):The discount rate that makes the net present value of investment zero. -Calculators and computers perform by trial and error. Potential for multiple IRR if cash flows vary -Strengths and Weaknesses of DCF Methods: ·Strengths Provide concrete financial estimates Explicitly consider timing of investment and time value of money ·Veaknesses May be deceptive;only as accurate as original estimates of cash flows. May fail to capture strategic importance of project EFMC EQUIS 23
23 Quantitative Methods for Choosing Projects • Internal Rate of Return (IRR): The discount rate that makes the net present value of investment zero. – Calculators and computers perform by trial and error. – Potential for multiple IRR if cash flows vary –Strengths and Weaknesses of DCF Methods: • Strengths – Provide concrete financial estimates – Explicitly consider timing of investment and time value of money • Weaknesses – May be deceptive; only as accurate as original estimates of cash flows. – May fail to capture strategic importance of project
同济经管 Qualitative Methods of Choosing Projects TONGJI SEM -Many factors in the choice of development projects are extremely difficult (or misleading) to quantify. Almost all firms thus use some qualitative methods. -Screening Questions may be used to assess different dimensions of the project decision including: Role of customer(market,use,compatibility and ease of use, distribution and pricing) Role of capabilities (existing capabilities,competitors capabilities,future capabilities) Project timing and cost EQUIS 188on 24
24 Qualitative Methods of Choosing Projects Many factors in the choice of development projects are extremely difficult (or misleading) to quantify. Almost all firms thus use some qualitative methods. – Screening Questions may be used to assess different dimensions of the project decision including: • Role of customer (market, use, compatibility and ease of use, distribution and pricing) • Role of capabilities (existing capabilities, competitors’ capabilities, future capabilities) • Project timing and cost
同济经管 Qualitative Methods of Choosing Projects TONGJI SEM -The Aggregate Project Planning Framework Managers map their R&D projects according to levels of risk,resource commitment and timing of cash flows FIGURE 7.6 The Project Advanced Product Change Map R&D Projects New Core Product Next-Generation Addition to Derivative Source:Adapted with Product Product Family Enhancements the permission of The Free Press,a Division of Simon Schuster ◆New Core + Breakthrough Adult Publishing Process Projects Group.from Revolutionizing Quantum L Next-Generation Speed,Effciency,and Process Platform Projects Quality by Steven C. Process Wheelwright and Kim Change Single Wheelwright and Kim Department B.Clark.All rights Upgrade Derivative Projects reserved. Incremental Change
25 Qualitative Methods of Choosing Projects – The Aggregate Project Planning Framework • Managers map their R&D projects according to levels of risk, resource commitment and timing of cash flows