Technology valuation of NTBFs in the field of cleaner production in terms of investors' exibility and uncertainty in public policy

Document Type : Article


Department of Progress Engineering at Iran University of Science and Technology (IUST), Narmak, Tehran, Iran


Technology valuation, especially in the early stages of new technology-based firms (NTBFs) growth is one of the most critical challenges, which most often hinders the investor and entrepreneur's deals during the venture capital (VC) financing process. It is clear that uncertainties arising from the likelihood of implementing public policies could significantly affect the volatility of NTBFs cash flows in the field of cleaner production. Commonly, these kinds of technologies require public supportive policies for achieving success. Consequently, their technology valuation is more challenging and traditional valuation methods are not suitable anymore because of the definitive assumption of cash flow and ignoring the investors’ flexibilities and uncertainties. Therefore, this paper proposes a method by introducing a framework based on the decision tree and the real options analysis which is tailored to meet the technology valuation of such firms during all stages of their growth. Furthermore, unlike previous papers that have utilized the compound options, option to choose has been used to apply investors’ flexibilities. Then, the proposed framework is supported by a case study, which has been conducted to verify and validate it. Finally, the conclusion section discusses the contributions and limitations of the study and provides directions for future research.


Main Subjects

1. Stokes, D. and Wilson, N., Small Business Management
and Entrepreneurship, Cengage., 6th Edn.
2. Yague-Perales, R.M. and March-Chorda, I. Performance
analysis of NTBFs in knowledge-intensive industries:
Evidence from the human health sector",
Journal of Business Research, 66(10), pp. 1983{1989
3. Jensen, A. and Clausen, T.H. Origins and emergence
of exploration and exploitation capabilities in new
technology-based rms", Technological Forecasting &
Social Change, 120, pp. 163{175 (2017).
4. Camison-Haba, S., Clemente-Almendros, J.A., and
Gonzalez-Cruz, T. How technology-based rms become
also highly innovative rms? The role of knowledge,
technological and managerial capabilities, and
entrepreneurs' background", Journal of Innovation &
Knowledge, 4(3), pp. 162{170 (2019).
5. Phan, P.H., Siegel, D.S., and Wright, M. Science
parks and incubators: observations, synthesis and future
research", Journal of Business Venturing, 20(2),
pp. 165{182 (2005).
6. Stucki, T. Which rms bene t from investments
in green energy technologies? -The e ect of energy
costs", Research Policy, 48(3), pp. 546{555 (2019).
7. Yabar, H., Uwasu, M., and Hara, K. Tracking environmental
innovations and policy regulations in Japan:
case studies on dioxin emissions and electric home
appliances recycling", Journal of Cleaner Production,
44, pp. 152{158 (2013).
8. Guerzoni, M. and Raiteri, E. Demand-side vs. supplyside
technology policies: Hidden treatment and new
empirical evidence on the policy mix", Research Policy,
44(3), pp. 726{747 (2015).
9. Amankwah-Amoah, J. and Hinson, R.E. Contextual
uences on new technology ventures: A study of
domestic rms in Ghana", Technological Forecasting
and Social Change, 143, pp. 289{296 (2019).
10. Quindlen, R. Confessions of a venture capitalist:
Inside the high-stakes world of start-up nancing",
Business Plus, May 1st (2001).
11. Cumming, D. and Dai, N. Fund size, limited attention
and valuation of venture capital backed rms", Journal
of Empirical Finance, 18(1), pp. 2{15 (2011).
12. Ari, G.B. and Vonortas, N.S. Risk nancing for
knowledge-based enterprises: mechanisms and policy
options", Science and Public Policy, 34(7), pp. 475{
488 (2007).
13. Engel, D. and Keilbach, M. Firm-level Implications of
early stage venture capital investment: An empirical
investigation", Journal of Empirical Finance, 14(2),
pp. 150{167 (2007).
14. Hochberg, Y.V., Ljungqvist, A., and Lu, Y. Networking
as a barrier to entry and the competitive supply of
venture capital", Journal of Finance, 65(3), pp. 829{
859 (2010).
15. Gompers, P., Kovner, A., Lerner, J., et al. Performance
persistence in entrepreneurship", Journal of
Financial Economics, 96(1), pp. 18{32 (2010).
16. McKaskill, T., Raising Angel & Venture Capital Finance,
Melbourne: Breakthrough Publications (2009).
17. Meyer, T. Venture capital in Europa - Mehr Pep
fur Europas Wirtschaft", Deutsche Bank Research,
Frankfurt (2006).
18. Dixit, A.K., Dixit, R.K., Pindyck, R.S., et al., Investment
Under Uncertainty, Princeton University Press
19. Kodukula, P. and Papudesu, C., Project Valuation
Using Real Options: A Practitioner's Guide, Fort
Lauderdale, Florida: J. Ross Publishing (2006).
20. Bagheri, R., Rezaeian, A., and Fazlaly, A. A mathematical
model to evaluate knowledge in the knowledgebased
organizations", Scientia Iranica, Transaction E,
Industrial Engineering, 22(6), pp. 2716{2721 (2015).
21. Daum, J. How to better exploit intangible asset to
create value", The New Economy Analyst Report, 6
22. Kamiyama, S., Sheehan, J., and Martinez, C. Valuation
and exploitation of intellectual property", OECD
Directorate for Science, Technology and Industry, STI
Working Paper 2006/5 (2006).
K. Fattahi et al./Scientia Iranica, Transactions E: Industrial Engineering 27 (2020) 3322{3337 3335
23. Hanel, P. Intellectual property rights business management
practices: A survey of the literature", Technovation,
26(8), pp. 895{931 (2006).
24. Smith, G.V. and Parr, R.L., Intellectual Property:
Valuation, Exploitation, and Infringement Damages,
Hoboken/N.J. Wiley (2005).
25. Hsieh, C.H. Patent value assessment and commercialization
strategy", Technological Foracasting & Social
Change, 80(2), pp. 307{319 (2013).
26. Loop, D. and Lipfert, S., Patentbasierte Unternehmens
nanzierung , Bankpraktiker 12/2006, pp.
594{599 (2006).
27. Reilly, R.F. and Schweihs, R.P., Valuing Intangible
Assets, Boston, McGraw Hill Professional (1998).
28. Battersby, G.J. and Grimes, C.W., Licensing Royalty
Rates, Licensing Royalty Rates, Aspen Publishers Online
29. Roman, V.B., LOPES, M., Marques, A., et al. Technologies
valuation methods applicable to technology
transfer in Brazilian universities: a review", In International
Conference on Industrial Engineering and
Operation Management, Valladolid, Spain (2013).
30. Shane, S.A., Academic Entrepreneurship: University
Spin-O s and Wealth Creation, Edward Elgar Pub,
New York (2004).
31. Stewart, T.A., The Wealth of Knowledge: Intellectual
Capital and the Twenty-First Century Organization,
Crown Business (2007).
32. Hall, G. Lack of nance as a constraint on the
expansion of innovatory small rms", In: Barber, J.L.,
Metcalfe, J.S., Porteous, M., Eds., Barriers to Growth
in Small Firms, Routledge, London (1989).
33. Storey, D.J., Understanding the Small Business Sector,
1st. Ed., Cengage Learning EMEA (1994).
34. Blackburn, R.A. High-technology new rms: variable
barriers to growth", International Small Business
Journal, 13(3), pp. 103{105 (1995).
35. Festel, G., Wuermseher, M., and Cattaneo, G. Valuation
of early stage high-tech start-up companies", International
Journal of Business, 18(3), p. 216 (2013).
36. Wang, Z. and Tang, X. Research of investment
evaluation of agricultural venture capital project on
real options approach", Agriculture and Agricultural
Science Procedia, 1, pp. 449{455 (2010).
37. Razgaitis, R., Valuation and Dealmaking of
Technology-Based Intellectual Property: Principles,
Methods, and Tools, John Wiley & Sons, Hoboken
38. Hunt, F., Mitchell, R., Phaal, R., et al. Early
valuation of technology: real options, hybrid models
and beyond", Journal of The Society of Instrument
and Control Engineers, 43(10), pp. 730{735 (2004).
39. Kjaerland, F. A real option analysis of investments
in hydropower-The case of Norway", Energy Policy,
35(11), pp. 5901{5908 (2007).
40. Lee, S.C. and Shih, L.H. Renewable energy policy
evaluation using real option model - The case of
Taiwan", Energy Economics, 32, pp. 67{78 (2010).
41. Batista, F.R.S., de Melo, A.C.G., Teixeira, J.P., et al.
The carbon market incremental payo in renewable
electricity generation projects in Brazil: a real options
approach", IEEE Transactions on Power Systems,
26(3), pp. 1241{1251 (2011).
42. Lee, S.C. Using real option analysis for highly uncertain
technology investments: the case of wind
energy technology", Renewable and Sustainable Energy
Reviews, 15(9), pp. 4443{4450 (2011).
43. Boomsma, T.K., Meade, N., and Fleten, S.E. Renewable
energy investments under di erent support
schemes: a real options approach", European Journal
of Operational Research, 220(1), pp. 225{237 (2012).
44. Detert, N. and Kotani, K. Real options approach to
renewable energy investments in Mongolia", Energy
Policy, 56, pp. 136{150 (2013).
45. Martinez-Cesena, E.A., Azzopardi, B., and Mutale, J.
Assessment of domestic photovoltaic systems based
on real options theory", Progress in Photovoltaics:
Research and Applications, 21(2), pp. 250{262 (2013).
46. Abadie, L. and Chamorro, J. Valuation of wind
energy projects: a real options approach", Energies,
7(5), pp. 3218{3255 (2014).
47. Kim, K.T., Lee, D.J., and Park, S.J. Evaluation of
R & D investments in wind power in Korea using real
option", Renewable and Sustainable Energy Reviews,
40, pp. 335{347 (2014).
48. Kroniger, D. and Madlener, R. Hydrogen storage for
wind parks: a real options evaluation for an optimal
investment in more
exibility", Applied Energy, 136,
pp. 931{946 (2014).
49. Jeon, C., Lee, J., and Shin, J. Optimal subsidy
estimation method using system dynamics and the real
option model: photovoltaic technology case", Applied
Energy, 142, pp. 33{43 (2015).
50. Weibel, S. and Madlener, R. Cost-e ective design of
ring wall storage hybrid power plants: a real options
analysis", Energy Conversion and Management, 103,
pp. 871{885 (2015).
51. Zhang, M.M., Zhou, P., and Zhou, D.Q. A real
options model for renewable energy investment with
application to solar photovoltaic power generation in
China", Energy Econ, 59, pp. 213{226 (2016).
52. Martn-Barrera, G., Zamora-Ramrez, C., and
Gonzalez-Gonzalez, J.M. Application of real options
valuation for analyzing the impact of public R&D
nancing on renewable energy projects: A company's
perspective", Renewable and Sustainable Energy Reviews,
63, pp. 292{301 (2016).
53. Chen, S.H., Xu, S.H., Lee, C., Xiong, N.N., and He,
W. The study on stage nancing model of IT project
investment", The Scienti c World Journal, 2014, pp.
1{6 (2014).
3336 K. Fattahi et al./Scientia Iranica, Transactions E: Industrial Engineering 27 (2020) 3322{3337
54. Chu, H., Ran, L., and Zhang, R. Evaluating CCS
investment of China by a novel real option-based
model", Mathematical Problems in Engineering, 2016,
pp. 1{15 (2016).
55. Wang, J., Wang, C.Y., and Wu, C.Y. A real options
framework for R&D planning in technologybased
rms", Journal of Engineering and Technology
Management, 35, pp. 93{114 (2015).
56. Stuart, R. and Abetti, P.A. Start-up ventures: towards
the prediction of initial success", Journal of
Business Venruring, 2(3), pp. 215{230 (1987).
57. Doutriaux, J. Emerging high tech rms: how durable
are their comparative sturt-up advantages?", Journal
of Business Venturing, 7(4), pp. 303{322 (1992).
58. Cooper, R.G. and Kleinschmidt, E.J. Benchmarking
the rm's critical success factors in new product
development", Journal of Product Innovation Management:
An International Publication of the Product
Development & Management Association , 12(5), pp.
374{391 (1995).
59. Kakati, M. Success criteria in high-tech new ventures",
Technovation, 23(5), pp. 447{457 (2003).
60. Chorev, S. and Anderson, A.R. Success in Israeli hightech
start-ups; Critical factors and process", Technovation,
26(2), pp. 162{174 (2006).
61. Sadeghi, A., Azar, A., and Rad, R.S. Developing a
fuzzy group AHP model for prioritizing the factors
a ecting success of High-Tech SME's in Iran: A case
study", Procedia - Social and Behavioral Sciences, 62,
pp. 957{961 (2012).
62. Jain, D., Garg, R., Bansal, A., et al. Selection
and ranking of E-learning websites using weighted
distance-based approximation", Journal of Computers
in Education, 3(2), pp. 193{207 (2016).
63. Garg, S.R. and Kumar, R. Computational MADM
evaluation and ranking of cloud service providers using
distance-based approach", International Journal of
Information and Decision Sciences, 10(3), pp. 222{234
64. Amit, G., Ramesh, K., and Tewari, P.C. Ranking
of inventory policies using distance based approach
Method", World Academy of Science, Engineering and
Technology, International Science Index 86, International
Journal of Mechanical, Aerospace, Industrial,
Mechatronic and Manufacturing Engineering, 8(2), pp.
395{400 (2014).
65. Sandhya, S. and Garg, R. Implementation of multicriteria
decision making approach for the team leader
selection in IT sector", Journal of Project Management,
1(2), pp. 67{75 (2016).
66. Garg, R. and Jain, D. Prioritizing e-learning websites
evaluation and selection criteria using fuzzy set theory",
Management Science Letters, 7(4), pp. 177{184
67. Garg, R. Optimal selection of e-learning websites using
multiattribute decision-making approaches", Journal
of Multi-Criteria Decision Analysis, 24(3{4), pp.
187{196 (2017).
68. Garg, R., Sharma, R., and Sharma, K. MCDM based
evaluation and ranking of commercial o -the-shelf
using fuzzy based matrix method", Decision Science
Letters, 6(2), pp. 117{136 (2017).
69. Garg, R. and Arora, S. Performance evaluation and
selection of nancial fraud detection models using
MCDM approach", International Journal of Recent
Research Aspects, 4(2), pp. 172{178 (2017).
70. Bansal, A., Kumar, B., and Garg, R. Multi-criteria
decision making approach for the selection of software
e ort estimation model", Management Science Letters,
7(6), pp. 285{296 (2017).
71. Garg, R. Performance evaluation and selection of software
e ort estimation models based on multi-criteria
decision making method", International Journal of
Recent Research Aspects, 4(3), pp. 252{257 (2017).
72. Jain, D., Garg, R., and Bansal, A. A parameterized
selection and evaluation of E-learning websites using
TOPSIS method", International Journal of Research
& Development in, 22(3), pp. 12{26 (2015).
73. Garg, R., Sharma, R., and Sharma, K. Ranking
and selection of commercial o -the-shelf using fuzzy
distance based approach", Decision Science Letters,
5(2), pp. 201{210 (2016).
74. Garg, R.K., Sharma, K., Nagpal, C.K., et al. Ranking
of software engineering metrics by fuzzy-based matrix
methodology", Software Testing, Veri cation and Reliability,
23(2), pp. 149{168 (2013).
75. Garg, R., Kumar, R., and Garg, S. MADM-based
parametric selection and ranking of E-learning websites
using fuzzy COPRAS", IEEE Transactions on
Education, 99, pp. 1{8 (2018).
76. Garg, R. and Jain, D. Fuzzy multi-attribute decision
making evaluation of e-learning websites using FAHP,
COPRAS, VIKOR, WDBA", Decision Science Letters,
6(4), pp. 351{364 (2017).
77. Zavadskas, E.K., Antucheviciene, J., Turskis, Z., et
al. Hybrid multiple-criteria decision-making methods:
A review of applications in engineering", Scientia
Iranica, Transaction A, Civil Engineering, 23(1), p.
1 (2016).
78. Jasemi, M. and Ahmadi, E. A new fuzzy ELECTRE
based multiple criteria method for personnel selection",
Scientia Iranica, 25(2), pp. 943{953 (2018).
79. Bruno, A.V. and Tyebjee, T.T. The entrepreneur's
search for capital", Journal of Business Venturing,
1(1), pp. 61{74 (1985).
80. Gompers, P.A. and Lerner, J., The Venture Capital
Cycle, MIT press (2004).
81. Lukas, E., Molls, S., and Welling, A. Venture capital,
staged nancing and optimal funding policies
under uncertainty", European Journal of Operational
Research, 250(1), pp. 305{313 (2016).
82. Antikarov, V. and Copeland, T., Real Options: A
Practitioner's Guide, Texere, New York (2003).
K. Fattahi et al./Scientia Iranica, Transactions E: Industrial Engineering 27 (2020) 3322{3337 3337
83. Herath, H.S. and Park, C.S. Multi-stage capital
investment opportunities as compound real options",
Eng Econ, 47(1), pp. 1{27 (2002).
84. Kim, K., Park, H., and Kim, H. Real options analysis
for renewable energy investment decisions in developing
countries", Renewable and Sustainable Energy
Reviews, 75, pp. 918{926 (2017).
85. Property, WIPO World Intellectual, Valuation of
Early Stage Technologies: How to Reach a Starting
Price" for Negotiating a TT Agreement, Noordwijk,
Holanda (2011).