Research On Real Options In Venture Capital Decision-making

The development of high-tech industry can not materialize without venture capital. The uncertainty from the process of development presents challenges to the venture capitalists. Due to the isolate view of the expected cash flows in a single project, the traditional discounted cash flow method does not reflect the strategic value and business value on the flexibility of the project. Thus, it can only passively respond to face uncertainty, which tends to cause the value of investment projects underestimate. In an uncertain market environment, the flexibility and potential growth opportunities for the business are part of the strategic value. Through the real option-based idea, the extended NPV evaluation system is able to measure these values effectively. This article aims to study how to use the Real Options in the Venture Investment Decision in order to further enrich and improve the investment decision-making system of venture projects.From the theoretical and practical aspects, our study is based on the analysis of the extensive internal and abroad research literatures on real options. We consider the Real Option Theory in the Venture Investment Project Evaluation of application problems and the empirical analysis. On theoretical aspect, the paper introduces the theory and traditional evaluation methods of venture capital. The shortcomings of traditional evaluation methods are briefly reviewed and the undervalued Investment Value Problems in the NPV method represented traditional decision-making method of investment is pointed out. Then a comprehensive introduction to the theory and application of real options framework of real options is presented. And we pointed out the real options thinking can make up for the shortcomings of traditional NPV method. On practical aspect, a comprehensive analysis of the risks of the investment characteristics of the project is presented. And we analyze the various stages inherent in real options and established a multi-stage compound real options based risk investment decision evaluation model. Therefore, it is with a certain theoretical significance and practical value.