How to limit the impact of downside risk of innovative projects: a new solution from a real option

This paper considers a new strategy of limiting the internal impact of downside risk of isolated entrepreneurial initiatives to achieve a specific, highly innovative project. As an alternative to the traditional spin-off, often excessive when the project is limited and isolated, a kind of ‘spin-in’ can be adopted by setting aside (and isolating at both an operative and accounting level) the internal resources strictly functional to the specific project. This is a solution recently introduced in Italy. 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. It is a kind of real option to take advantage of certain types of innovation without excessive boomerang effects.