Flex Technology was a startup with a breakthrough medical device — the Flexible Herbert Screw, which would help fractures in small, curved bones heal faster. When the CEO was offered a large sum of money for the intellectual property rights of the screw, he was faced with the decision to sell to the bigger company or see Flex Technology through the startup phase. Key to the decision-making would be determining the value of the startup — and its risk.
Startups in the medical field were usually considered extremely risky, but the larger company had expressed continued interest in the patent, even if the CEO didn’t accept their initial offer and Flex ended up going under — though in that case, they’d offer a significantly lower price. Taking a conservative approach, the CEO estimated distribution costs, product price, initial market share and other factors in order to calculate his venture’s worth. The numbers pointed to sticking with Flex.
Read about how Flex Technology’s CEO realistically calculated his company’s value in Darden Professor Yael Grushka-Cockayne’s article “Risky Business? How to Know Your Startup’s True Value,” in the Darden School of Business/Washington Post “Case in Point” series.