Valuation for New Product Development

High Energy Consulting utilizes a variety of valuation techniques for estimating the value of its client’s new product development opportunities, systematically estimating the risk in the new venture along with the expected returns.

Traditional discounted cash flow techniques and sensitivity analysis are used for the early stages of product development to identify the drivers of value for the opportunity. Monte Carlo simulations and Decision Trees are used to provide investors with a realistic model of the distribution of possible valuation outcomes. We use the powerful Crystal Ball Software from Decisioneering (www.decisioneering.com) to create realistic models of the opportunity and to identify the value drivers most likely to ensure new product success. Most importantly, we use this tool to communicate to potential investors that we understand the risks and rewards in the opportunity and have a firm foundation for our valuation estimate.

For the business plan, real options valuation techniques are used to ensure that the strategic value in the new venture is captured along with the economic value modeled through the discounted cash flow techniques. For truly innovative new products, High Energy Consulting has found the traditional discounted cash flow techniques to be inadequate by themselves in estimating the value of the opportunity. Real options enables the client to understand the options that are imbedded in new product opportunities. Such options include, for example, the option to abandon the project, the option to expand into new markets, or the option to delay the launch of a new product.

For new businesses hoping to attract equity investments or debt financing, High Energy Consulting knows what bankers and venture capitalists are looking for; we employ valuation models suitable for each audience.

For opportunities characterized by high volatility and market risk, most of the value in a new product development initiative is represented by the strategic value, and this value is best estimated by using the same techniques that have been used to value financial options for many years.

High Energy Consulting uses the business plan as the tool to give its clients valuable new product development options, and uses the real options valuation framework to assist with the design of a diversified new product portfolio.

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