We have spent the last twelve months building a proprietary AI scheduling platform, but it is only seventy percent complete. A strategic buyer wants to acquire us now but is giving us zero value for this unfinished asset. How do we use a real options framework to negotiate a fair price for this technology?

Question

Tyler Smith · Accepted Answer

Strategic buyers frequently discount unfinished technology, often viewing it as a high-risk liability rather than an asset. To effectively counter this perspective, you should leverage a strategic real options framework. This approach enables you to structure a transaction that pays you for the future potential of your platform without obligating the buyer to absorb all the upfront development risk.

Valuing Unfinished Assets

To begin, calculate the flow cost of waiting to complete the platform internally versus the lump-sum cost for the buyer to finish it using their own engineering resources. If you possess private information regarding the platform's high quality and its capacity to reduce operational costs, you must proactively demonstrate this capability to decrease information asymmetry. Consider building a working prototype that clearly showcases a crucial completion task, such as automatically generating scheduling outputs with verifiable high accuracy. This can be crucial in proving your system's capabilities and value, similar to how [operational playbooks](/qa/operational-playbooks-for-strategic-premium-multiples) can prove a business is turn-key.

Structuring the Deal with Real Options

Instead of accepting a zero valuation for your proprietary AI scheduling platform, propose a structured earn-out or a contingent payment.

Key elements for this structure include:

• Tying payout to milestones: Directly link the payout to specific development milestones.
• Examples of milestones: These could include the platform reaching full deployment or achieving a defined user adoption rate post-close.
• Option contract: This effectively frames the unfinished technology as an option contract.

If the buyer successfully completes the platform and realizes the anticipated cost savings, you will then receive a share of that created value. Conversely, if they opt not to pursue completion, they forfeit the option. This strategy protects your downside by securing a fair price for the core business today, while allowing for future upside on the AI asset. When considering such structures, it's also important to understand how to defend other [AI investments in QofE EBITDA](/qa/defending-ai-investments-in-qofe-ebitda). Furthermore, understanding the [flow cost of AI delay](/qa/real-options-flow-cost-ai-delay) can also strengthen your negotiation stance. For example, delaying an AI project might incur a cost by not capitalizing on market opportunities or efficiency gains.

This approach ensures that the buyer is incentivized to complete and utilize the technology, as their success directly impacts your eventual payout. It also provides a clear mechanism to get compensated for the future value you have built, even if it's not yet fully realized. When dealing with such complex negotiations, understanding broader [business valuation art vs science](/qa/business-valuation-art-vs-science) can provide additional context.

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