The concept of having fold consideration as opposed to low risk considerations is the underlying theme of this discussion. Given that, we suggest that the research and development project failure rate should be about 50%. The argument is, it should not have a higher failure rate (and payoff rate) as venture capital, and it certainly should be done with a bank and home shopping use. It has been suggested that R&D project failure rate for maximum return should be somewhere between 30% to 50%. This diagram demonstrates a smooth curve (not necessarily the case) centered around a 50% failure rate, which we suggest could clearly optimize the valuation of the R&D portfolio. As we stated in the beginning, a portfolio evaluation of zero risk yields no return; and infinite risk, obviously yields no return. Picking a failure rate of around 30% to 50% seems to us to be a reasonable number.
As data is accumulated, we will be able to nail down this value tighter than it now exists.
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