The Value of Innovation in Nanotechnology

This paper addresses the highly current topic of using quantitative economic methods to support rational investment decision-making in the domain of technological innovation. Such investments are characterized by a high degree of exogenous and endogenous uncertainty combined with complex feedbacks, making conventional capital budgeting techniques inadequate. It introduces a comprehensive valuation model developed for the Shyman (Sustainable Hydrothermal Manufacturing of Nanomaterials) project, which researched and implemented new technologies in nanomaterial production and application. This represents a highly innovative and complex industry in all life cycle stages, making it a perfect candidate for research. The model combines various analytical methods, including a recursive form of life cycle costing (LCC), as well as statistical simulation (Monte Carlo) and real options, and addresses valuation from the perspective of a new end-product, as well as that of the production facility investor. A high Net Advantage to Innovating (NAI) has been identified in the industry. This result is strongly biased in favour of end-product innovators. Nevertheless, the hydrothermal synthesis-based nanomaterial production process benefits from its high degree of flexibility, i.e. option to switch, with a significant value premium arising due to outsize dynamics and uncertainty in the nanoindustry. Experience gained through this research can be extended to other cases of value-based analysis related to innovation.