I have today completed the Advanced Valuation and Strategy— M&A, Private Equity, and Venture Capital course offered by Erasmus University Rotterdam on Coursera. I must say that it is one of the most thought-provoking courses I’ve taken in a while. Led by Professor Han Smit, the course covered more than just financial models — it introduced concepts like real options, game theory, and expanded NPV.
For someone working in FDI and international strategy, this course is incredibly useful for evaluating growth-stage companies: factoring in strategic flexibility, not just financial projections.
Key Concepts Explored
The curriculum covered several advanced valuation techniques:
1. Real Options Theory: Valuing Flexibility
Real Options Theory provides a framework for quantifying the value of managerial flexibility within projects and investments. Instead of relying solely on a single expected path, it acknowledges that management can adapt based on future events. This is relevant for decisions such as:
- Investing in R&D may not yield immediate returns, but it has the potential to unlock significant opportunities.
- Deciding whether to scale up big or maybe even pull back based on how things are going.
- Just strategically waiting to see how the market shakes out before committing fully.
The ability to pivot or double down has a real, quantifiable value that a simple DCF might completely miss.
2. Option Games: Incorporating Competitive Dynamics
Strategic decisions are rarely made in isolation; competitors’ actions and reactions significantly influence outcomes. The course introduced option games, which integrate real options principles with game theory to model these competitive interactions. Examples where this applies include:
- Analysing bidding strategies in M&A scenarios.
- Evaluating the optimal timing for launching a new product relative to competitors.
This highlighted the limitation of evaluating strategic decisions without considering the competitive landscape. Understanding potential responses seems crucial for a more realistic assessment of a strategy’s potential value and risk.
3. Valuing Strategic Growth Options: Beyond Traditional NPV
Traditional Net Present Value (NPV) analysis can sometimes undervalue investments, particularly if they create significant future opportunities or offer substantial flexibility. The concept of an ‘Expanded NPV’ was discussed as a way to formally incorporate these elements, capturing:
- The value derived from potential future growth opportunities enabled by the initial investment.
- The financial value associated with operational or strategic flexibility.
- Anticipated market reactions to strategic moves.
This approach appears particularly relevant for firms with substantial intangible assets or those operating in volatile environments where future strategic choices are a key driver of long-term value.
4. Connecting Strategy to Financial Value
A recurring theme was the direct, quantifiable link between strategic decisions and their impact on financial value. The perspective emphasised that strategic planning should ideally incorporate robust financial modelling to understand the value creation (or destruction) implications of different choices, such as acquisitions, major investments, or even strategic delays.
Reinforcing Concepts through practice.
Thankfully, we didn’t just talk about these concepts in theory. We had assignments where we really had to wrestle with it:
- Trying to value an R&D project using real options logic (harder than it sounds!).
- Figuring out whether to expand or contract based on changing market conditions.
- Modelling how competitors might behave in an M&A situation.
Doing those cases definitely made it all feel less abstract and more like tools you could actually use.
Final Thoughts
Okay, full disclosure: the course was tough. It definitely required putting in the hours. But I came out of it looking at valuation quite differently. It’s like I’ve got a new set of glasses now—ones that see things in a more strategic, flexible, and maybe even realistic way.
This course is genuinely worth exploring for anyone working in strategy, private equity, VC, corporate development, or similar fields who wants to move beyond basic valuation and tackle uncertainty and competition. It gave me a lot to chew on.
