So how do these questions translate into financial decisions?
As you’ve heard, investors use net present value (NPV) modeling to translate the answers to their core questions into data that allows them to make well-informed financial decisions. No investment decision is without risk, but these calculations help investors allocate funds as thoughtfully as possible.
[OPTIONAL] This interactive Google Workbook, featuring data from a company we made up, will show you how to build a simple NPV model. Take a moment to play with it. Check out each sub-sheet within the workbook to build adjust. Toggle the inputs to watch the results change (no wrong answers!).
Or check out this easy-to-use calculator from Bioheights.
Are you surprised? What kinds of inputs make a product investable or not investable?
And are you starting to understand why drugs cost what they do? (But remember, this doesn’t mean that they should be unaffordable to patients. More on this in the next chapter!)
To conclude, let’s make this personal. In this video, Peter shares about what it really takes to get to a “yes” on an investment decision, and about times when he couldn’t make the math add up, despite a company’s potentially great idea.