Making wiser one-off investments
Many investment decisions involve placing a bet with a large sum of money. The outcome is uncertain, and it will be some time before the uncertainty is resolved. This is certainly true of pharmaceutical and other R&D investments. Other risky investments include launching a brand new product, launching into a new territory, building a new manufacturing facility, oil & gas exploration, making a movie, etc.
If you are looking at a risky investment, you want answers to three questions:
- Will it work?
- If it does work, how much is it worth?
- How much will it cost?
In my experience, clients usually have a good answer to the third question, because short term costs are often predictable and everybody is focussed on budgets. But of course it is the first two questions that are much more important if you want to have any sense of the risk and reward, and whether the bet is worth taking. I can’t always eliminate the risks, but with careful assessment, modelling and evaluation I can change the odds in your favour.
A recent example
...involved helping a client understand the value of their pre-revenue technology business and how it would jump as they passed (assuming success) the next few R&D milestones. This work was sufficiently compelling that the company’s backers stumped up the next round of venture capital, despite the depth of the credit crunch—a great result!