Raising the Returns to Venture Finance

Baden-Fuller, Charles and Dean, Alison and McNamara, Paul S and Hilliard, Bill (2006) Raising the Returns to Venture Finance. Journal of Business Venturing, 21 (3). pp. 265-285. ISSN 0883-9026. (The full text of this publication is not available from this repository)

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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
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School > International Business and Strategy
Depositing User: Alison Dean
Date Deposited: 02 Sep 2008 12:20
Last Modified: 16 Jun 2014 10:57
Resource URI: http://kar.kent.ac.uk/id/eprint/9141 (The current URI for this page, for reference purposes)
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