Funding Startups Using Contingent Option of Value Appreciation: Theory and Formula

Abstract

In this talk, Dr. Wang proposes a new financial instrument for multiple rounds of funding for technological startup companies. The theory of valuation for startups extends Black-Scholes-Merton model by introducing an extra growth rate and incorporating real-world probability of R&D failure for startups. The contingent option of value appreciation is specified such that the strike price floats over time at the risk-free rate, which leads to elegant pricing formula. This valuation model is used to examine how an increased level of R&D input affects the startup’s value growth. 

About the Speaker

Professor Shaun S. Wang is Chair and Professor of Finance Department, Southern University of Science and Technology, China. Previously he served as Director of the Insurance Risk and Finance Research Centre, Nanyang Technological University in Singapore, Deputy Secretary General of The Geneva Association, the Thomas P. Bowles Chair Professor at Georgia State University, Research Director at SCOR, Assistant Professor at the University of Waterloo and Concordia University.

Professor Wang is an internationally renowned scholar in actuarial science and enterprise risk management. He has published 40+ articles in leading academic journals with 6000+ Google scholar citation, and has received 10+ international awards. He is the author and inventor of the "Wang Transform", a pricing formula for catastrophe insurance and weather derivatives.

Professor Wang has a Ph.D. in Statistics from University of Waterloo, B.Sc. and M.Sc. in Mathematics from Peking University. He is a Fellow of the Casualty Actuarial Society, Chartered Enterprise Risk Analyst, and Member of the American Risk and Insurance Association.