Innovation and Financial Markets

Foreword ix

Introduction xiii

Chapter 1. From the Idea to the Stock Market 1

1.1. Prologue 1

1.2. A long and rigorous path 4

1.2.1. A graphic representation 4

1.2.2. Steps to be taken 6

1.2.3. Product marketing by the menu 33

1.3. Categories to represent the progress made 39

1.3.1. Brief description of the categories 40

1.3.2. Intangible assets to be acquired to move from one category to the next: detailed description and required satisfaction levels 41

1.4. Use of criteria satisfaction levels as a rating guide 53

Chapter 2. How to Develop the Innovative Capacity of Companies 55

2.1. Introduction 55

2.2. Siphoning queries to produce an idea 56

2.3. Having the means (skills) required 57

2.3.1. Technical achievements 57

2.3.2. Protection against dangers 58

2.3.3. Generating routines and procedures 59

2.4. Having an appropriate organization 59

2.4.1. Prerequisites 59

2.4.2. Building the capacity to innovate 60

Chapter 3. Innovation and Its Challenges for the Company 65

3.1. Introduction 65

3.2. General innovation policy: a vital issue, survival 66

3.2.1. Uncertainties and costs of innovation, in return for survival 67

3.2.2. A deadly risk 70

3.3. Innovation: major sectoral issues 71

3.3.1. Innovation? Improving and creating new products/services 71

3.3.2. The challenge of differentiation 73

3.3.3. The challenge of being the leader 75

3.3.4. The challenge of reducing production costs 77

3.3.5. The challenge of penetrating new markets 78

3.3.6. The challenge of creating a competitive advantage CSR and/or GDPR 79

Chapter 4. Financial Evaluation of an Innovation Project 85

4.1. Introduction 85

4.2. Costing 86

4.2.1. Determining net initial costs 88

4.2.2. Calculating the theoretical value of the start-up 90

4.3. Judgment (goodwill) 90

4.3.1. Purpose 90

4.3.2. Contents of the data room information source 91

4.3.3. Data room organization and using criteria favourable to innovation 91

4.3.4. Using criteria conducive to innovation: approach to be followed 92

4.4. Negotiation 92

Chapter 5. Funding Innovation 95

5.1. Issues related to funding growth 96

5.2. Means of funding growth 100

5.2.1. Initial shareholders’ equity 100

5.2.2. Love money 102

5.2.3. Competitions 103

5.2.4. Public aid 104

5.2.5. Crowdfunding 105

5.2.6. Interest-free loans 109

5.2.7. Business angels 109

5.2.8. Venture capital 111

5.2.9. Bank financing 114

5.2.10. Private equity 117

Chapter 6. Valorization of Innovation by Financial Markets 123

6.1. How to determine the expected return from innovative companies 124

6.1.1. Capital asset pricing model (CAPM) 124

6.1.2. Multifactorial models: arbitrage pricing theory (APT) 131

6.1.3. Multi-factor models based on microeconomic factors 132

6.1.4. Carhart model 136

6.1.5. Fama and French five-factor model 138

6.1.6. Sensitivity of innovative companies to risk factors 141

6.2. Outperformance of innovative companies 141

Chapter 7. Innovation and Credit Risk 143

7.1. Credit risk 143

7.2. Credit risk and rating agencies 146

7.3. Relationship between credit risk and innovation 147

7.4. Innovative companies less risky in the long-term? 149

7.5. Conclusion 150

Chapter 8. Financial Innovation: Creating Value… or Risk? 151

8.1. Basic concepts of portfolio management 151

8.1.1. Diversification 151

8.1.2. Markowitz model 152

8.1.3. Financial innovation “theoretically” a source of diversification 158

8.2. Risk-creating financial innovation? 159

Conclusion 161

References 163

Index 171