Method for Quantifying the Strategic Value Contribution of Start-up Investments by Established Companies

Investing in start-ups is a promising source of innovation for established companies. They enable significantly faster access to new technologies, markets and business model innovations compared to internal innovation activities. Various quantitative and qualitative valuation methods already exist for estimating the financial return potential of a start-up investment. However, when established companies invest in start-ups, the focus is usually on strategic returns, in terms of value contribution to the corporate goals of the company. Due to the diversity of the various objectives and the limited information base for an investment, quantifying the potential value contribution represents a major challenge for the investing companies. Therefore, they usually reduce the evaluation to a qualitative assessment of the strategic fit, which limits informed decisions. This paper provides an application-oriented method for quantifying the strategic value contribution of a start-up investment for the investing company. This is a significant contribution to decision support prior to upcoming start-up investments. First, the theoretical background is briefly introduced, existing approaches are reviewed and their deficits are discussed, before model requirements are identified and the methodology and its sub-models are derived.