Baden-Fuller, Charles and Dean, Alison and McNamara, Peter and Hilliard, Bill (2006) Raising the returns to venture finance. Journal of Business Venturing, 21 (3). pp. 265-285. ISSN 0883-9026

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Abstract

Investors in ventures that threaten to disrupt the markets of incumbents can use the options markets to add value to their investments by purchasing put options on the stock of the disrupted rivals on the basis of their asymmetric knowledge. By making a profit on these derivative trades in the stock of the disrupted firms, the investor innovator is able to recapture from the market extra and immediate profits (equivalent to the value of the consumer surplus) generated by the innovation. These additional profits increase the incentive of investors to invest in disruptive ventures and so correct biases that have been observed against investing disruptive innovation. Our paper provides guidance as to how these effects arise and their value. It also explores the ethical, regulatory and practical constraints on undertaking the trades, pointing out that it is effective and the legality seems to be robust provided certain conditions are met.

Item Type:	Article
Additional Information:	The definitive version of this article is available at Charles Baden-Fuller, Alison Dean, Peter McNamara, Bill Hilliard, Raising the returns to venture finance, Journal of Business Venturing 21 (2006) 265– 285. © 2005 Elsevier Inc.
Keywords:	Venture finance; Options; Disruptive ventures; Returns;
Academic Unit:	Faculty of Social Sciences > School of Business
Item ID:	5655
Identification Number:	https://doi.org/10.1016/j.jbusvent.2005.02.009
Depositing User:	Peter McNamara
Date Deposited:	09 Jan 2015 09:38
Journal or Publication Title:	Journal of Business Venturing
Publisher:	Elsevier
Refereed:	Yes
URI:	http://www.journals.elsevier.com/journal...
Use Licence:	This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here

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