Business Case Studies & Business Publications

Plains Ventures: Investing in the Heartl...

Markou, Panos, Par...

Case

Plains Ventures: Investing in the Heartland

Markou, Panos; Parker, Christopher; Klopfenstein, Amy

OM-1838 | | 16 pages Case

Collection: Darden School of Business

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Justin Wilson, president and managing director of venture capital firm Plains Ventures, faces a critical decision: how to allocate a fund’s capital between two portfolio companies, Lecoeur Labs and Evanescence Sciences. Both companies face significant challenges and require additional funding to survive but also present strong potential upsides. Wilson must weigh the risks and expected value of each alternative, assessing where he can add the most value as a venture capitalist, while also considering a third alternative: declining to reinvest in the portfolio companies and investing in a new company. This partially fictionalized, field-based case explores the interplay of qualitative and quantitative factors in project selection, introduces the concept of an investment in innovation as a real option, and facilitates a discussion about how to approach investment in innovative endeavors, including how to think about uncertainty throughout a start-up’s life cycle. The quantitative portion of the case allows for a real-options analysis of an investment decision. It includes a supplemental spreadsheet model that enables visualization of the expected value of different investment options, differentiating between a one-shot investment decision and a two-stage (real-options) investment. The case and teaching note include video interviews with Wilson in which he explains his underlying thinking as he approached the case dilemma. At the University of Virginia Darden School of Business, this case is taught in “Managing Innovation,” a second-year elective. It would also be suitable for MBA and executive education courses on investing and management decision-making, or as an introductory case to decision trees and real options.

Through the case discussion, students should (1) compare qualitative and quantitative approaches to start-up selection and investment, (2) build an understanding of how VC firms approach investing, (3) gain competency with real-options analysis and the value of information, (4) relate innovation and experimentation to real-option decision-making, and (5) understand how differences among minimizing downside, maximizing upside, and dealing with expected payouts affect decision-making.