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    Raising the returns to venture finance


    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:

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