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"Valuation Time-Effect Model" - a brief description

 

 

SUMMARY

 

Determining the optimal monetization time period for a new-technology driven enterprise requires an understanding of what we term the "valuation time-effect model". In essence, this model seeks to offer a qualitative way to describe how enterprise valuations change as the time remaining till market-launch reduces. It should be borne in mind however that this is purely a qualitative, empirical model and lacks academic rigour.

 

 

 

COMPONENTS

 

What we have referred to above in the aggregate as a "valuation time-effect model" actually comprises two components.

 

 

(1) One component relates to "Valuations vs. Time to market-launch" trends.

 

Generally speaking (and on a “ceteris paribus” basis), the closer a technology is to commercialization (and/or the closer a product with the same underlying technology is to market-launch), the higher the technology's assignable value, subject of course to the second component described below.

 

 

(2) The second component relates to the "Valuation accuracy vs. Time to market-launch" trends.

 

This aspect relates to valuation accuracy levels instead of to the absolute valuation levels as in the earlier point.  Valuations tend to become progressively more accurate (a narrower bell-curve!) the closer one gets to the commercialization transition i.e. to the actual market-launch.  The major underlying driver is the fact that revenue streams become progressively more ameable to correct estimations closer to, and of course after, the actual market-launch.

 

 

 

CONCLUSION

 

In sum therefore, this time effect model predicts an upward trending of both the "absolute valuation levels" as well as the "valuation confidence levels" as a new-technology-driven enterprise approaches its commercialization transition. 

 

 

 

 

  

 

 

 

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