Are fintechs worth investing? case study for startup using real option theory

Investments in startups have grown significantly in recent years. From the investor’s point of view, startups are very attractive due to their great potential for growth. However, as they are highly innovative and early-stage companies, the low data availability makes it difficult to properly analyze and make strategical investment decisions and risk management. Those factors make traditional methods of valuing companies, such as Discounted Cash Flow analysis, insufficient. In this context, Real Options Theory emerges as an important method for evaluative purposes, especially the Integrated Method for Option Evaluation, alleviating the uncertainties and subjectivities involved in the process. This article describes the application of this method to a new fintech company. Our results showed that the optimal investment alternative, given the investor's risk tolerance profile, is to make an initial investmentto test the firm’s viability and then make subsequent investments in a phased approach.