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Executive Summary
For the commercialisation of the new innovation from Junyu and its market related impacts,
this report analyses the function of the banks and the Venture capitalists to ascertain which of
the two investment opportunities should be sought after for this project. The next part
analyses the two countries Australia and United states among which only one is going to be
selected as the launching market. Therefore, careful analysis of the index values regarding the
various parameters from “The Global Competitiveness Report 2018” has been undertaken.
The index values have been computated to numerical values so as to be able to calculate a
cumulative performance indexes for the two countries. Based on that analysis, United States
was selected to be the best choice of country among the two for this initiative.
Table of Contents
Executive Summary...................................................................................................................2
1. Introduction............................................................................................................................4
2. Analytical Development.........................................................................................................5
3. Conclusion............................................................................................................................11
4. Appendix..............................................................................................................................12
1. Introduction
To assume a binary status for determining whether a new development is a innovation or not
determining the effect of the innovation is used. This entails an incremental analysis of the
development in two axis. Firstly, the impact of the development in the market sense has to be
considered and secondly, the impact of the development in the technological sense. The
below figure would provide a better understanding of the process of determining where to
Figure 1
As can be seen in the above figure if the development is strictly an innovation in the market
sector that is not a development in the technology sector then it is termed as an Architechtural
innovation. If however, the developments do not bring any new innovation to either the
Radical Innovation.
For the purposes of this case, we need to ascertain in which space the new innovation from
Junyu falls on. The pharmaceutical market is an already established market place and also the
industry of vigour inducing drugs is not a new one. So we can clearly state that the innovation
is not market related. However, the technological development is significant when compared
to the alternatives that are already in the market place. Based on those two factors we can
The point that needs to be considered, as with all drugs, is the ethical considerations of the
drug in the market place. From the fact that it is not the first of its kind, and vitality and vigor
inducing drugs already exist in the market place, we can understand that the drug is definitely
not outside the scope of morality. However, pending clinical trials, the implications of this
drug could be huge for a certain sub section of the population. The drug enables reduction in
sleep time. However, reduction in sleep time is not necessarily directly proportional to the
creative output that a person can give. Mental fatigue from work would still be as big of a
factor as before. Therefore it could not be termed as a destructive drug on its own, rather as a
2. Analytical Development
Task 1
To develop the task, I would use research papers from the Harvard Business review to
explain the reason behind the existence of Venture capital market and Venture capitalists.
Today in the market of abundant start – ups, there often is a shortage of hard assets for most
of them at the beginning. Therefore, the risk involved in investing in those start-ups goes
higher. However, this also negates the ability of the banks to finance the operation as they are
legislatively bound to a certain interest rate. Therefore, in the absence of hard assets if the
risk factor goes sufficiently high, then the banks cannot finance the operation as the interest
rate for the investment cannot be maintained at the corresponding high rates because of Usury
laws that are in place. This is where Venture capitalists come in. The idea behind the venture
capital market is to invest in innovations that can be readily commercialised. The capital
invested in this form is rarely long term investments; rather, investment is done in boosting
the infrastructure of the commercial aspects of the innovation so that they can be sold to
corporations at substantially inflated valuations to gain liquidity for the investments that have
been made.
To understand where exactly venture capital investments are generally made, let us take the
portion in the funding of new innovation. In 1997, in the United States, a total of US $ 10
billion had been invested by venture capitalists, however, from that only 6 % of the funding
(or US $ 600 million) was invested in start ups. This shows the stark difference between the
perception that Venture Capitalists have and the actual investments that they do. Most of the
amount of that US $ 10 billion went into follow – up funding for already established
programmes that already had initial capital investments in the form of government funding or
corporate funding. The investments made venture capitalists is generally not in good ideas or
great innovations, but rather in current excelling markets. Over the years, the vested interests
of the Venture capital firms have shifted along with the growth in various segments of the
market. In the 1980s, the venture capital market invested heavily in the energy industry. That
those markets. In more recent times, the investments have shifted again to the “Internet
space” which accounts for almost 25 % of the total venture capital investments. The venture
capital investments are generally made in sectors that are expected to have significant growth
numbers (over 20 – 25 %). To understand the specificity of this growth parameter, we need to
understand that less than 10 % of market segments are expected to grow even 15% annually.
The next step would be to understand how the venture capital funding takes place and how it
is different from other kinds of investments. As discussed earlier, banks cannot claim as high
new innovation. However, venture capitalists exist by inflating the valuation of the company
that they have invested in my growing its infrastructure, marketing, sales and hard assets and
then selling those to established corporations that might be interested in them. The rate of
return in the long run that venture capital investors look for is relatively higher than normal at
about 35 % to 40 5 annually. Most of the funding for the venture capital funds comes from
large institutions like pension funds, financial firms university endowments and insurance
companies. These institutions invest a small part of their capital in high risk and high return
venture capitalists that offer them a return rate of about 25 % to 30 % in the long run.
Task 4
Now in performing the task for the specific case of Junyu, based on the requirements we need
to analyse the venture capital markets in both the United States and also Australia. The
2. Financing of SMEs
For data regarding these parameters we will use the data from “The Global Competitiveness
Report 2018” that was published in the World Economic Forum. The compilation of the data
has been mentioned in the Appendix section. Here we evaluate the data by computing the
numerical value for the index of performance for each country i.e. United States and
Australia. The values in “The Global Competitiveness Report 2018” have been listed below.
In order to develop the task, we must first understand the concept of numerical scoring. It is
this case we have taken a uniform maximum value of 100 out of which the numerical scores
Now, the values in the “The Global Competitiveness Report 2018” have been shown out of 7
in all cases except for that of “Number of days to start a business” which has been depicted in
days. For the other parameters, the formula that was used was,
I
S= ∗100
7
Where, I depicts the index value of the parameter. 7 is the highest numerical value in the
indexing scale. Therefore, for Intellectual property rights protection in Australia, the I value
would be 5.8. Putting that into the equation would give us the value 82.86 which is the
For the Number of days to start a business the ranks of the countries out of the 140 listed
countries were considered because the highest or lowest scores in days were inconsequential.
The rank for Australia was 5th and that for the US was 30th. Therefore, the numerical score for
140−5
S= ∗100
140
The corresponding numerical values for these parameters have been adjusted and computed
as scores out of 100 for all parameters except the “Number of days to start a business” which
is a quantitative figure. For that parameter, the ranks of the countries on the list of 140
countries have been adjusted for to represent a score out of 100. The adjusted values have
No. (S)
1 Intellectual property rights protection 82.86 84.28
2 Financing SMEs 67.14 82.85
3 Number of days to start a business 96.42 78.57
4 Venture Capital Availability 51.42 80.00
5 Companies embracing disruptive ideas 58.57 81.42
6 Soundness of banks 91.42 82.86
Table 2
Based on the weights that have been allotted to each of these six parameters (described in the
table 3 below) the following scores for the two countries have been generated.
protection
Financing SMEs S2 25
Number of days to start a business S3 25
Venture Capital Availability S4 10
Companies embracing disruptive S5 5
ideas
Soundness of banks S6 5
Table 3
Cumulative numerical score for United States based on these weights is 81.853.
supporting a new start up and comparatively, according to these figures, United States is the
3. Conclusion
Therefore having analysed the innovation that needs to be commercialised and also the start
up environments of the two countries (US and Australia) we can safely understand that if
only one country is chosen for establishment of the enterprise, then it should be done in the
United states, because of its better performance in two key segments of interest namely, the
In pursuit of task 5 the table depicting the index values from the Global Competitiveness
4. Appendix
Task 2
In order to develop the task I will discuss the loaning and investing practices of the banks. In
most cases banks are bound by Usury laws which prohibit them from charging interests
higher than a fixed rate. In the case of Junyu the investment required would be for a start up
with no hard assets. This, in terms of the banks, represents a high risk factor and, therefore,
would require higher interest rates for investments. This is legally not possible for the banks
to do, and hence, no, the banks would not be able to provide the capital investments for
Junyu. Junyu will have to rely upon venture capitalists to get her financing, because most
other sources of investments other than corporate are legally restricted from charging higher
interest rates, which would be necessary for the risk value of this project.
Task 3
Where P refers to the cumulative performance index of the countries, Sn refers to the
numerical scores of individual parameters and an refers to the weights for that specific
parameter. N refers to serial number for the parameters and its values range from 1 to 6, as