Valuation approaches for technology transfer: A review

Technology development is a key factor in the economic success of a country or a business organization, but in some cases it is not economically feasible to develop the required technology. In such situations there arises a need to acquire the required technology for a price. Pricing innovations, new product ideas, and technologies can be complex, even under the best of conditions. Techniques for valuation also depend on a broad range of factors. Furthermore, reliable valuation is essential for portfolio analysis, venture funding, business development, and mergers and acquisition activity. ne potential for spin-offs incorporating these technologies and the prospective markets for them are at times ill defined and result in pricing technology being even more complex. Finally, technology is distressingly intangible and financially abstract. Although at present there are several techniques available for technology valuation, there is often the dilemma of choosing the right technique for the appropriate situation. Some of the main factors that directly affect the valuation of technology are the time value of money, the risk of technical failure, and the cost already incurred for the development of the technology itself. The majority of techniques treat R&D as a strategic capital cost rather than an expense. There has been a longstanding misconception that the more quantitative a model, the better the valuation, but in reality, simpler valuation models perform much better. In this paper the authors will review possible techniques for technology valuation and outline the situations for which each technique would be suitable. The known advantages and disadvantages of each technique will also be discussed.