Innovation and Financial Markets

4Financial Evaluation of an Innovation Project

4.1. Introduction

Financial evaluation, or valuation, is a delicate and strategic operation that includes:

• – costing;
• – goodwill;
• – a negotiation.

The financial evaluation of an innovation project (start-up) is essential for third parties to take the decision to invest funds in it.

The start-up is like any other asset: it can be acquired through a purchase transaction.

This acquisition may be total (100% of the shares) or partial (a certain percentage of the total shares) in both cases. To enable a transaction to take place, it must first be valued.

Partial acquisition is the operation most often used by investors to acquire shares of the start-up, not from shareholders, but from the company, in return for a certain amount of funds dedicated to the achievement of the business plan.

The valuation of a company, whether it has potential, like a start-up, or maturity, like an SME, is a delicate operation, because two important milestones must be met:

• – a sufficient amount of funds is needed to accomplish the actions required by the business plan;
• – the percentage of shares granted in return for the investment must not hinder the development of the start-up by an excess of power, or a demotivation of “key” people, in particular the founders. In general, it is accepted that 60% is an upper limit that should not be reached.

In this issue, the value of the start-up has a central role.

Indeed, for the same investment need, a high valuation ...