How to Limit the Impact of Downside Risk in Innovative Projects.An internal corporate solution from revisiting a recent Italian experience

This paper considers whether and to what extent a business enterprise may find it worth adopting a new strategy of limiting the impact of downside risk of isolated entrepreneurial initiatives aiming to achieve a highly innovative project. As an alternative to the traditional spin-off, in recent Italian experience a kind of spin-in can be adopted by setting aside internal resources to be allocated to a specific business project at both an operative and accounting level. The part of the firm’s assets set aside from the rest of the business represents to what extent the firm is willing to expose itself to risk for the project in question. However, to avoid business dissolution due to excessive proliferation of such internal separations, a strict legal limit is established to the total size of the funds allocated, whatever their number. This strict limit and the problem of dividing common costs within the internal accounts are considered in the literature as causes of failure of this internal strategy in alternative to the spin-off. We contest this opinion and seek to show when and how such obstacles can be overcome.