Studies On The Application Of Compound Real-options In Venture Capital Valuation

The value assessment of venture capital projects is one of ways to reveal investment risk, how to assess the value of venture capital projects is a systemic project. In order to improve methods of investment evaluation, the ideas and methods of portfolio of real options will be applied to find the uncertainty which embedded in the venture capital project in this paper.On the basis of characters analysis of venture capital projects, the ideas of vertical portfolio real options and horizontal portfolio real options will be used to make decision of venture investment, integrated real options pricing model will be amended on the base of previous research, and the amended integrated real options pricing model will be used to study case. The main work done can be summarized as follows:1. Summing up the concept of real options, classification of real options, pricing model of real options, and comparing real options decision-making methods with traditional decision-making methods, the advantages of real option valuation model will be pointed out in the paper.2. Summing up the concept, characters of venture capital projects and traditional evaluation model of venture investment project, the disadvantages of traditional evaluation model will be pointed out.3. By analyzing the characters of venture capital projects, point out that the venture investment projects with multiple features of real options. In assessing the value of venture investment projects not only take into account real options thinking, and should consider the use of combination of real options thinking. The following aspects of the portfolio of real options in venture capital projects will be studied in the paper:Firstly, investors invest in the venture capital companies at multi-stage. There is longitudinal correlation between different types of real options at investment multi-stage. The relevance of longitudinal correlation leads to that there is not directly additive to the same type of vertically integrated real options, the contrary types of real options can be added.Secondly, in the venture capital process,there is synergy between parallel projects. If assessing the value of projects separately, individual item may not be worth to invest. If all items can be combined to consider, namely, to consider combination of synergies generated by the project, portfolio projects can bring benefits for investors, projects are worth to invest.Lastly, based on the non-tradable character of real assets and mutual influence of different type real options, fix the real option pricing model.In order to certify the necessity and scientific of portfolio real options which is applied in the value assessment of venture capital, Yueyang Electric Co., Ltd. will be chosen as an example in the paper. Use traditional project valuation method and real option pricing method to assess value of the case. The result results can be further confirmed that combination of real options in venture capital projects is necessary and scientific.