THE EVALUATION OF VENTURE FINANCING EFFECTIVENESS OF INNOVATIVE PROJECT USING REAL OPTIONS METHOD

In the current financial theory traditional approaches to assessment of efficiency of innovative projects very often show their limitations, since most of them are not suitable for projects implemented in conditions of high risk and uncertainty. In such situation, the urgent task is to improve the methodological approaches to evaluation of innovative projects’effectiveness by venture funds implementing new assessment tools that are used in the world practice. Among such instruments is real options method. The problem considered in this paper may be formulated in the following way: how can a venture fund make an evaluation of investment project which has a high degree of uncertainty. The methodological approach suggested by the authors is tested on the real venture-backed innovative project in the petrochemical industry, which is implemented in Russia. The results of calculations of indicators for assessing of economic efficiency of innovative project are presented. The meaningful interpretation of the obtained results is given. In accordance with the standard NPV-method in many cases the project is not efficient for venture fund and should be rejected. However, if we take into account the value of a compound call option, the project in many cases will have a positive value and will receive financing. The value of the compound call option increases the value of the innovative project taking into account the factor of its phased implementation and the ability to withdraw financing at some point of time. In other words, the real options method allows to take into account and quantify the managerial flexibility when management of the innovative project is making a decision of its further implementation, that expands the analytical capabilities of financial practitioners and improve the accuracy of the estimation.

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