Adjusting for Technology Risk and Return

Abstract

Thus far we have developed a simplified buyout model that can be applied to various buyout situations in various industries. Although some of the assumptions of the model were already made with respect to technology buyouts, we have not yet asked how the model as a whole could be adjusted for technology firms, or rather what the key issues are when applying this model to technology firms. As seen, technology firms are subject to specific risks, which is the reason they have traditionally been avoided by buyout investors. They also represent particular return opportunities due to the growth upside, which have historically outpaced by far most firms in traditional industries. In the following section, we evaluate how an application of the model would need to be adjusted to the technology-specific risk and return characteristics.