Decision Tree and Real Options to Value Agtech Startup Growth

Abstract

Agtech startups face multiple uncertainties and have limited flexibility when it comes to growing their business. Companies that are growing ultimately need to take on new capital. This new capital can be from many different sources like strategic partners, investors, angels, VC, grants, and debt. What source is best for the entrepreneur and what will lead to the highest probability of success or the ideal outcome for shareholders can vary depending on the tradeoffs of each funding round. This paper has developed a model to analyze the returns and risks of alternative funding decisions for a prototypical ag-tech startup. By incorporating real options and integrating them within a decision tree, entrepreneurs will be able to see what growth strategy will lead to the most desired outcome. This paper uses one case study of an agtech startup and can be applied to multiple different startups in different sectors.