Valuations of Early-Stage Companies

and Disruptive Technologies: How to

Value Life Science, Cybersecurity and
ICT Start-ups, and their Technologies
Tiran Rothman
Visit to download the full and correct content document:
https://ebookmass.com/product/valuations-of-early-stage-companies-and-disruptive-t
echnologies-how-to-value-life-science-cybersecurity-and-ict-start-ups-and-their-techn
ologies-tiran-rothman/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...

Disruptive Technologies, Innovation and Development in

Africa 1st ed. Edition Peter Arthur

https://ebookmass.com/product/disruptive-technologies-innovation-
and-development-in-africa-1st-ed-edition-peter-arthur/

Actuators and Their Applications: Fundamentals,

Principles, Materials, and Emerging Technologies
Abdullah M. Asiri

https://ebookmass.com/product/actuators-and-their-applications-
fundamentals-principles-materials-and-emerging-technologies-
abdullah-m-asiri/

The AI Revolution in Networking, Cybersecurity, and

Emerging Technologies Omar Santos

https://ebookmass.com/product/the-ai-revolution-in-networking-
cybersecurity-and-emerging-technologies-omar-santos/

Explaining the Future: How to Research, Analyze, and

Report on Emerging Technologies Sunny Bains

https://ebookmass.com/product/explaining-the-future-how-to-
research-analyze-and-report-on-emerging-technologies-sunny-bains/
Early Stage Valuation: A Fair Value Perspective 1st
Edition Antonella Puca

https://ebookmass.com/product/early-stage-valuation-a-fair-value-
perspective-1st-edition-antonella-puca/

Understanding Large Language Models: Learning Their

Underlying Concepts and Technologies 1st Edition
Thimira Amaratunga

https://ebookmass.com/product/understanding-large-language-
models-learning-their-underlying-concepts-and-technologies-1st-
edition-thimira-amaratunga/

Synthesis, Modelling and Characterization of 2D

Materials and their Heterostructures (Micro and Nano
Technologies) 1st Edition Eui-Hyeok Yang (Editor)

https://ebookmass.com/product/synthesis-modelling-and-
characterization-of-2d-materials-and-their-heterostructures-
micro-and-nano-technologies-1st-edition-eui-hyeok-yang-editor/

MXenes and their Composites: Synthesis, Properties and

Potential Applications (Micro and Nano Technologies)
1st Edition Kishor Kumar Sadasivuni (Editor)

https://ebookmass.com/product/mxenes-and-their-composites-
synthesis-properties-and-potential-applications-micro-and-nano-
technologies-1st-edition-kishor-kumar-sadasivuni-editor/

Valuation: Measuring and Managing the Value of

Companies 7th Edition Tim Koller

https://ebookmass.com/product/valuation-measuring-and-managing-
the-value-of-companies-7th-edition-tim-koller/
 Valuations of
Early-Stage Companies and
Disruptive Technologies
How to
Value Life Science,
Cybersecurity and
ICT Start-ups,
and their Technologies

Tiran Rothman
Valuations of Early-Stage Companies
and Disruptive Technologies
 Tiran Rothman

Valuations of
Early-­Stage Companies
and Disruptive
Technologies
How to Value Life Science, Cybersecurity
and ICT Start-ups, and their
Technologies
Tiran Rothman
Tel Aviv, Israel

ISBN 978-3-030-38846-1    ISBN 978-3-030-38847-8 (eBook)

https://doi.org/10.1007/978-3-030-38847-8

© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the
whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations,
recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or
information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar
methodology now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does
not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective
laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information in this book
are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the
editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or
omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in
published maps and institutional affiliations.

Cover Image © Number1411 / shutterstock.com Graphic © Mungkorn Lasonthi / Dreamstime.com

This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG.
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
 Acknowledgments

This book was researched and written with the assistance, guidance, and
insights of numerous people in research seminars at New York, Haifa, Tel
Aviv, and Bar-Ilan Universities, and the Technion. I wish to express my appre-
ciation for comments on this research from participants at the Summer
Institute on Bounded Rationality, the Max Planck Institute Berlin (MPIB);
the Research in Behavioral Finance Conference, Erasmus University
Rotterdam; the Israeli Economics Association (IEA); and the Learning,
Bounded Rationality, and Decisions Workshops.
My sincere thanks also go to Prof. Aaron (Roni) Ofer for his immense help
and guidance, Prof. Shabnam Mousavi and Prof. Gerd Gigerenzer for a very
helpful summer school at the Max Planck Institute, and to Dr. Ofir Levi, Dr.
Gal Ofir, Dr. Dan Weiss, Dr. Roi Zokerman, and Dr. David Disatnike.
Foremost, I would like to express my sincere gratitude to Prof. Doron Kliger
for his continuous support, patience, motivation, enthusiasm, and immense
knowledge.
Last but not least, I would like to thank my family: my parents, Hanna and
Avi; my three perfect children, Liri, Peleg, and Erel; and especially my beauti-
ful wife, Roni, for her never-ending support.

v
 Contents

Part I A Short Overview of Valuations   1

1 Introduction  3

2 Understanding Financial Valuations: Foundations and Basic

Traditional Techniques  7

Part II Overcoming Valuation Hurdles: How to Conduct

Valuations Under Unique Circumstances  21

3 Understanding the Basic Elements of Stockholder Statements

and Their Use in Valuations 23

4 Valuation Methods: The First Chicago Venture Method and

the Use of Real Options 35

Part III Behavioral Factors: How Psychology Affects Bias in

Valuations  49

5 Introduction to Behavioral Finance 51

6 An Overview of Investor Behavior in Financial Markets and

Psychological Influences on Valuations 65

vii
viii Contents

7 How to Overcome Investor Behavior and Psychological

Influences in Valuations: How to Evaluate a Dream? 79

Part IV An Introduction to Valuations in R&D-­Intensive

Industries  89

8 The Pharmaceutical Sector 91

9 Life Sciences: Disrupting Biologic Drugs Manufacturing103

10 An Overview of the Cybersecurity and the Renewable

Energy Sectors111

Part V Actual Valuations 119

11 Company A: Pharmaceutical/New Compounds121

12 Company B: Pharmaceutical/Biologics149

13 Company C: Cybersecurity165

14 Company D: Renewable Energy189

15 Conclusion205

Appendix A: Capitalization Rate for Renewable Energy Firms209

Appendix B: Capitalization Rate for Software Firms211

Index213
 List of Figures

Fig. 8.1 Drug development costs and duration 94

Fig. 8.2 The different FDA NDA application tracks 96
Fig. 10.1 Applying the network and information security directive 112
Fig. 11.1 Worldwide sales for the top 10 Condition II drugs
(table and figure) 136
Fig. 12.1 Adalimumab biosimilars competition, sales data, and forecast
through 2024 152
Fig. 13.1 Company C’s position in sector ecosystem 166
Fig. 13.2 Company C’s position in user network 167
Fig. 13.3 Company C’s position in user network 170
Fig. 13.4 DPI advantages 177
Fig. 13.5 DPI Regional Trends 179
Fig. 14.1 Company D project breakdown 202

ix
 List of Tables

Table 2.1 Models for valuing a company’s projected revenues 13

Table 4.1 Cybersecurity 36
Table 4.2 Comparative market sector analysis of competing applications 37
Table 4.3 New stem cell technologies 41
Table 4.4 Valuation parameters 43
Table 4.5 ROV valuation 44
Table 4.6 Pre-patent expiration scenarios 45
Table 4.7 NPV evaluation 46
Table 4.8 Comprehensive evaluation 47
Table 5.1 Recognized psychology and behavioral biases that can affect
financial decisions and valuations 62
Table 7.1 Success rates of solar and wind energy projects 85
Table 7.2 Valuation of technology 87
Table 8.1 Ride-sharing sales 100
Table 10.1 Network security market 113
Table 10.2 Four major drivers affecting the adoption of network security
measures114
Table 10.3 Major constraints affecting the adoption of network security 115
Table 11.1 Company A’s R&D and clinical testing status 122
Table 11.2 Potential direct competitors for Company A’s products 135
Table 11.3 Company A’s clinical applications 140
Table 11.4 Clinical development success rates (SR) 142
Table 11.5 Main valuation parameters for Conditions I and II 143
Table 11.6 Company A pipeline analysis 143
Table 11.7 Primary valuation parameters of Company A’s technology 144
Table 11.8 Company A expanded pipeline analysis 145
Table 11.9 Company A sensitivity analysis 146

xi
xii List of Tables

Table 11.10 Company A forecasts 146

Table 11.11 Company A CAPM model 147
Table 12.1 Key competitors of Company B: a comparative analysis 153
Table 12.2 Valuation factors of Company B’s technological platform 160
Table 12.3 Company B valuation elements 161
Table 12.4 Company B sensitivity analysis 162
Table 12.5 Company B’s CAPM model 162
Table 12.6 Company B’s competitors’ capital rounds and recent M&As 163
Table 13.1 Consumers of Company C solutions 168
Table 13.2 DPI market segmentation 178
Table 13.3 Major drivers impacting adoption of DPI 182
Table 13.4 Major constraints impacting adoption of DPI 183
Table 13.5 Company C five-year forecast 186
Table 14.1 Company D’s Israeli and Irish holdings 199
Table 14.2 Full scope of Company D projects 200
Table 14.3 Company D’s project variables 201
Table 14.4 Company D’s pipeline values 202
Table 14.5 Company D equity breakdown 203
Table 14.6 Company D sensitivity analysis 204
 Part I
A Short Overview of Valuations
 1
Introduction

Adam Smith, the renowned philosopher once wrote: “all money is a matter of
belief.”1
In 1906, Marcus Goldman took this insight and monetized it, when he
sought to raise capital for the United Cigar company. At that time, Goldman
gave a more concrete definition to valuation, with his development of the
ground-breaking technique of using a company’s future earnings potential to
establish a valuation of a firm and attract long-term equity investments.
The successful sale of United Cigar’s common shares based on this principle
became a model for future industrial and retail transactions, and was used by
the leading retailers at the time. After World War I, financial valuation grew
into an academically and market-validated concept, becoming the gold stan-
dard for establishing the value of and raising capital for new companies in
industries that were asset-poor and precedent-lacking, yet rich in potential.
Decades later, and valuations have become a standard in almost all financial
activity, from mergers and acquisitions of publicly traded firms to the alloca-
tion of shares in a private firm and for the meeting of basic needs. In recent
years, with technology companies emerging and becoming a vital part of
investors’ portfolio, the challenge has arisen of adapting valuation tools to be
able to evaluate these assets and assess the potential of new developments.
From the viewpoint of large companies, valuation is based on forecasts of
free cash flow. In technologically driven industries, the pipeline or the prod-
ucts that a given firm has in its portfolio can represent a large fraction of
market capitalization. The situation is even more critical for small companies

1
Adam Smith. The Wealth of Nations (1776).

© The Author(s) 2020 3

T. Rothman, Valuations of Early-Stage Companies and Disruptive Technologies,
https://doi.org/10.1007/978-3-030-38847-8_1
4 T. Rothman

committed to a single idea, as all of their value is linked to a single project and
based on their intellectual property (IP). Any business transaction in which
innovative projects or products are being valued or exchanged requires a real-
istic valuation of those items, as does any internal proposal to initiate or ter-
minate an R&D project. Moreover, different projects have very different
dynamics. Pharmaceuticals have very long lead times and are dependent on
patents as well as on out-licensing deals. And while software can be developed
very quickly, IP is difficult to value.
This work is intended to provide a practical guide for entrepreneurs, inves-
tors, and financial advisors for constructing and understanding valuations of
technology companies, mainly startups, in rapidly shifting industries, focus-
ing on life sciences (pharmaceuticals), cyber security, and renewable energy.
While this book focuses primarily on the financial aspects of valuation, it
also draws on a number of interdisciplinary approaches, especially with respect
to the issues encountered when evaluating early-stage ventures. Of particular
importance is our analysis of psychological insights into investor and entre-
preneur behavior at different intervals throughout the valuation process. Until
now, the normative approach to economic modeling has been based on tradi-
tional assumptions of economic rationality. This approach is now being
increasingly tempered by new insights into the psychological aspects of
decision-making.
The many traditional models of rational decision-making view the mind as
if it were an omnipotent being. However, the perceptions of all human crea-
tures about the world, and their ensuing decisions are affected by limitations
of time, knowledge, and decision-making abilities. Most “real-life” areas, such
as capital markets, involve uncertainty, which leads to investors’ “bounded
rationality,” meaning that they actually can see and assess only an incomplete
and possibly even misleading snapshot of reality. If one desires to understand
how human minds work, he must look not only at how our reasoning is “lim-
ited” in comparison to an ideal model, but also at how our minds are adapted
to real-world environments.2
Herbert Simon, Nobel Prize Laureate and father of behavioral finance,
viewed bounded rationality as consisting of two elements that are inextricably
intertwined. The first is the inherent limits on the way the human mind func-
tions, and the second is the nature of the environments or areas in which the
individual must make judgments. With respect to the inherent limits of the
human mind, the argument is that models of human judgment and

2
Wellner, G., & Rothman, T. (2019). Feminist AI: Can We Expect Our AI Systems to Become Feminist?
Philosophy & Technology, 1–15.
 1 Introduction 5

decision-making should be built on what we actually know about the mind’s

capacities rather than on conjectures that may have no basis in reality. In
many actual situations, it is impossible to know what the optimal strategy is.
Even in a game such as chess, where an optimal (best) move does in fact exist
at every point, there is no strategy, whether generated by a person or a machine,
for determining the perfect move in a reasonable amount of time, despite the
well-defined nature of the possibilities to be searched. There is even less of a
possibility of finding an optimal strategy in the real world with less defined
and more dynamic conditions. As a result of this and the mind’s inherent
limitations, people humans use approximate methods to handle most tasks.
These methods include recognition processes that largely allow people to
eliminate the need to search for further information. The second method
involves decision-making processes for making a search and determining
when sufficient information has been accumulated to make a determination.
Finally, people turn to and even subliminally use simple decision-making
rules that they apply to the information found. After clarifying the elements
of a valuation and how they are applied to a company, the general issues that
need to be addressed when making a valuation about the company itself and
its market environment, and the special challenges of making valuations for
new technology and startup companies, it becomes clear that not all valua-
tions “are created equal,” given that emotional and irrational factors influence
the judgments made by everybody, including financial professionals.
To help professionals and laymen alike, this book presents some examples
taken from actual valuations of life science, cybersecurity, and renewable
energy companies. These examples illustrate how the rules and theories dis-
cussed throughout the first part of the book are put into practice when mak-
ing valuations in new technology companies in the life sciences, cybersecurity,
and renewable energy fields.
While all these valuations are based on deep and thorough investigations of
financial market sector and technology factors, they also reflect the inevitable
limitations of human psychology and behavior. As discussed, the human
mind is not capable of even approximating perfection when constructing its
states of knowledge and beliefs. There are numerous reasons for this, and they
affect the work of valuations done by professionals.
For example, hindsight bias, or our inevitable preference to see the world as
predictable and stable, as well as our overestimation of our ability to overcome
our limitations and predict outcomes is a ubiquitous trait. It enables all of us,
including professional analysts, to understand and cope in unpredictable
environments, like those of startup companies. But hindsight bias can cause
decision makers to underestimate volatility and consequently invest more
6 T. Rothman

than they would have had they been able to accurately assess the risk. Therefore,
the financial performance of a hindsight-biased individual is likely to be lower
than that of one without this trait.
Other problems afflicting valuations are confirmation bias, whereby an
individual interprets evidence in accordance with his or her initial beliefs,
beyond the level justified by the evidence. Confirmation bias is more likely to
arise when evidence contains alternative interpretations and is ambiguous,
which is common in innovative ventures, or when there has been selective
collection and analysis of evidence, forcing individuals to judge the relation-
ship between distinct events, despite the fact that individuals require the
aggregation of data from different sources, which is not always available in
these young industries. This also presents a challenge to the professional ana-
lyst, as can been seen in the practical examples offered in the book.
This book explores the proposition that cognitive resource scarcity influ-
ences investors when analyzing early stage firms and their technology. If we
can accept and understand this in theory and in practice, we will be better
equipped to overcome our resource scarcity.
 2
Understanding Financial Valuations:
Foundations and Basic Traditional
Techniques

2.1 Background
This chapter aims to clarify the concept of valuation in general, and in R&D-­
intensive industries specifically. It also seeks to demonstrate the importance of
valuations, and their significance for the fate of entrepreneurs, their compa-
nies, and technologies.
Assigning a single figure valuation to a company is challenging for financial
analysts and daunting for entrepreneurs. Analysts have the arduous task of
making difficult assumptions and determining the numbers, while entrepre-
neurs understand that a valuation represents the market’s judgment of a life-
time’s work, sometimes even several lifetimes in cases of family businesses.
Can a single sum reflect the true worth of an innovation or the entirety of the
business behind it?
The short answer is no, it cannot. But that is no reason to put this book
down just yet! It may prove helpful to consider corporate valuation just as
Churchill considered democracy: “… the worst form of government except
for all the others.”1 While valuation is by no means perfect, it is the best
known and most widely tested method we have.
This chapter begins by asking what is a corporate valuation. To address this
question fully, we examine the often ignored issue of the value of money,
which is critical for understanding the importance of monetary valuations,
particularly from a behavioral perspective. We then explain some critical

1
Winston S. Churchill, November 11,1947, House of Commons, as quoted in Richard Langworth, Ed.
(2008), Churchill by Himself: The Definitive Collection of Quotations, NY: Public Affairs Publishers.

© The Author(s) 2020 7

T. Rothman, Valuations of Early-Stage Companies and Disruptive Technologies,
https://doi.org/10.1007/978-3-030-38847-8_2
8 T. Rothman

definitions. The chapter continues by discussing the advantages and some of

the drawbacks of valuations. This includes the importance of, and need for,
valuations, how they are used, and some of their consequences in the market.
We conclude with a preliminary explanation of how valuations are not created
equal but come in numerous shades and stripes, especially in the high tech
sectors.

2.2 It’s All About Trust

Much like money, which at face value is nothing more than a piece of paper,
valuations have become standard “currency.” This is because market actors
accept them as the optimal representation of a company’s value. This process
mirrors what Niall Ferguson has called the “ascent of money:”2 a system of
exchange that is accepted across all human societies despite the good itself
being inherently worthless.
In this section, we discuss the relationship between money and valuations.
It is important to first understand from where money comes and how it works.
In his bestselling book Sapiens, a Brief History of Humankind, Dr. Yuval Noah
Harari of the Hebrew University of Jerusalem describes money as a “figment
of our collective imagination:”

Today, the whole of humankind has become a single network of cooperation.

Though even today not all people believe in the same god or obey the same
government, they are all willing to use the same money. Osama bin-Laden, for
all his hatred of American culture, American religion, and American politics,
was very fond of American dollars.3

Harari, like Adam Smith centuries before him, concludes that trust is the
true value in money. So, too, a financial valuation is only as meaningful as the
credibility of the person who constructs it. While a an analyst must have a
strong general financial background, valuations are credible only if the analyst
has a moderate to advanced understanding of the company’s business model,
its corporate strategy, the market in which it seeks to compete, and, most
importantly, the product it is offering.

Just as money is an instrument based on trust, so too are corporate valuations.

2
Niall Ferguson, (2008). The Ascent of Money: A Financial History of the World. London: Penguin.
3
Yuval Noah Harari, (2018). Sapiens: A Brief History of Humankind, (NY: Harper Perennial), 21.
 2 Understanding Financial Valuations: Foundations and Basic… 9

2.3 What Is a Valuation?

Valuation is defined in many different ways, but keeping things simple is
likely to be the most helpful approach. Accordingly, valuation can be defined
as follows:

Valuation is the amalgamation of all the different valuable elements of a certain

entity while taking into account the variables which may impact the value of
those elements to arrive at a single encompassing figure.

A corporate valuation is a valuation performed on a business. There are

four types of corporate valuations.

1. Fair market value: This is the business value of enterprise as determined

by a party interested in buying and a party interested in selling under con-
ditions of perfect information and zero coercion.
2. Investment value: This refers to the price of a company for a particular
investor, with the synergy between the investor’s profile and the company’s
business representing a major determinant of the valuation.
3. Accounting value: This refers to the net assets of the business according to
its balance sheet.
4. Intrinsic (or economic) value: This is the measure of a business’s value as
reflected by an investor with a deep understanding of the company’s eco-
nomic potential.

This book examines intrinsic economic valuations of firms. At times, these

may involve consideration of fair market, investment, and/or accounting val-
uations, but never only one of these and seldom a single amalgamation of
all three.

2.4  he Advantages and Disadvantages

T
of Corporate Valuations
The usefulness of a corporate valuation varies depending upon the perspective
of the potential audience. Corporate valuation techniques can be useful to
credit sources, equity investors, management, potential acquirers, auditors,
and competitors, each of which may have a particular interest in distinct
aspects of information. This suggests that there is not just one way to examine
10 T. Rothman

and analyze a company that is appropriate or reasonable for all clients. It

should always be born in mind that providing a company valuation is signifi-
cantly different than performing a detailed audit. The analyst making the
valuation is not entirely interested in questioning the given finances. Nor is
the analyst performing a comprehensive diagnostic of all the company’s oper-
ating activities and their industries. Rather, the analyst will focus on the most
important areas that will show where the company’s value lies.
In the absence of a transactional activity or precedents, financial valuations
can be used to define the fair value of a business for a variation of reasons,
including for the sake of a sale, entering into a partner ownership, or even
personal proceedings such as divorce. Shares owners will often approach out-
side professional business valuators to receive an objective value of their com-
pany. Valuations are often carried out by analysts to reflect the interests of the
recipient. For example, analysts could use a method that delivers a low valua-
tion for buyers and a method that delivers a higher valuation for sellers.
Similarly, valuations for those with a financial interest in the company are
likely to be higher, while valuations for those with a financial interest in a
competing company may be inclined to devalue the company under examina-
tion. Indeed, in such cases, these figures might be publicized. A truly indepen-
dent valuation is difficult to achieve. However, certain regulations in recent
years have sought to address this. Under the new European MiFID II reform
legislation to protect investors and increase transparency, for example, brokers
in Europe must choose between charging for investment research and per-
forming as investment bankers.4

2.5 What Does a Corporate Valuation Reflect?

Any corporate valuation needs to remain focused on its primary purpose of
determining and integrating all the different “valuable” elements in a single
commercial entity in order to assess the overall value of the business. For
example, it would not be possible to determine how competitive a company
is within its sector simply by using financial statements to gather and analyze
information about it. A company’s value is strongly affected by its competitive
position, and a highly saturated market is a major risk factor that can have a
serious impact on the value of a business. Only by considering all the elements
that contribute to or impede a company’s value is it possible to specify a

4
MiFID II regulation. For further reading, see https://www.esma.europa.eu/policy-rules/
mifid-ii-and-mifir.
 2 Understanding Financial Valuations: Foundations and Basic… 11

credible value range. The value range represents an informed opinion of what
the company in question could be worth.
It should be emphasized that corporate valuation is just one type of valua-
tion. Consider property valuation, for example. When evaluating a property,
a property appraiser could simply walk through a house and add together the
number of bricks, pipes, light bulbs, floor panels and so on, then account for
their depreciation, and add the cost paid for the land. Such an appraisal,
assigning a value to the property as if it was located on a deserted island in the
middle of an uninhabited planet would be of little use in the market. In fact,
failing to account for the drivers and constraints of value in the property mar-
ket renders such an appraisal meaningless.
Now imagine that since this property was placed on the market, its location
has become a war zone, scientists have discovered that it is earthquake-prone,
and several outbreaks of epidemic diseases have been recorded among resi-
dents. Would you still be willing to pay the total value of its raw materials? Of
course not! You would naturally expect the value of the property’s elements to
be discounted.
In contrast, imagine that since this property was placed on the market, a
densely populated cosmopolitan city has sprouted around it, offering an
attractive lifestyle and environment and resulting in soaring land rents. Such
a property would never be sold for the composite value of all its building
inputs and original land price because individuals would be willing to pay
more to enjoy the advantages in the area. These elements have value too.
Consequently, information is gathered about a firm and models are con-
structed about its activity in order to provide objective projections of a firm’s
financial performance in its sector. These projections and the interpretations
of them then provide the basis for valuing the firm as a whole and then for any
securities it has issued. This remains the bread and butter of any corporate
valuation, but there are many additional courses that the analyst needs to
consume before finishing the entire valuation meal.

Time as a Variable in the Value of Money

The value of a unity of currency does not deviate in absolute terms.

Nonetheless, money actually flowing into the company in the present is
clearly more valuable than funds that have yet to be received, regardless of the
value of the money anticipated in the future. Therefore, when valuing the
firms, the funds expected to be received in the future are converted into
Another random document with
no related content on Scribd:
The Project Gutenberg eBook of Tom Swift and
his talking pictures
This ebook is for the use of anyone anywhere in the United States
and most other parts of the world at no cost and with almost no
restrictions whatsoever. You may copy it, give it away or re-use it
under the terms of the Project Gutenberg License included with this
ebook or online at www.gutenberg.org. If you are not located in the
United States, you will have to check the laws of the country where
you are located before using this eBook.

Title: Tom Swift and his talking pictures

or, The greatest invention on record

Author: Victor Appleton

Release date: January 1, 2024 [eBook #72578]

Language: English

Original publication: New York, NY: Grosset & Dunlap, 1928

Credits: Delphine Lettau, Greg Weeks, Cindy Beyer, Mary Meehan &
the online Distributed Proofreaders Canada team at
http://www.pgdpcanada.net

*** START OF THE PROJECT GUTENBERG EBOOK TOM SWIFT

AND HIS TALKING PICTURES ***
TOM SWIFT AND HIS TALKING
PICTURES
 OR
The Greatest Invention on Record

BY VICTOR APPLETON

AUTHOR OF
“TOM SWIFT AND HIS MOTORCYCLE,”
“TOM SWIFT AMONG THE DIAMOND MAKERS,”
“TOM SWIFT CIRCLING THE GLOBE,”
“THE DON STURDY SERIES,”
ETC.

ILLUSTRATED

NEW YORK
GROSSET & DUNLAP
PUBLISHERS
Made in the United States of America
 Copyright, 1928, by
GROSSET & DUNLAP, Inc.

Tom Swift and His Talking Pictures

TOM SWIFT WAS THROWN OVERBOARD.

BOOKS FOR BOYS

By VICTOR APPLETON
12mo. Cloth. Illustrated.

THE TOM SWIFT SERIES

 TOM SWIFT AND HIS MOTORCYCLE
TOM SWIFT AND HIS MOTORBOAT
TOM SWIFT AND HIS AIRSHIP
TOM SWIFT AND HIS SUBMARINE BOAT
TOM SWIFT AND HIS ELECTRIC RUNABOUT
TOM SWIFT AND HIS WIRELESS MESSAGE
TOM SWIFT AMONG THE DIAMOND MAKERS
TOM SWIFT IN THE CAVES OF ICE
TOM SWIFT AND HIS SKY RACER
TOM SWIFT AND HIS ELECTRIC RIFLE
TOM SWIFT IN THE CITY OF GOLD
TOM SWIFT AND HIS AIR GLIDER
TOM SWIFT IN CAPTIVITY
TOM SWIFT AND HIS WIZARD CAMERA
TOM SWIFT AND HIS GREAT SEARCHLIGHT
TOM SWIFT AND HIS GIANT CANNON
TOM SWIFT AND HIS PHOTO TELEPHONE
TOM SWIFT AND HIS AERIAL WARSHIP
TOM SWIFT AND HIS BIG TUNNEL
TOM SWIFT IN THE LAND OF WONDERS
TOM SWIFT AND HIS WAR TANK
TOM SWIFT AND HIS AIR SCOUT
TOM SWIFT AND HIS UNDERSEA SEARCH
TOM SWIFT AMONG THE FIRE FIGHTERS
TOM SWIFT AND HIS ELECTRIC LOCOMOTIVE
TOM SWIFT AND HIS FLYING BOAT
TOM SWIFT AND HIS GREAT OIL GUSHER
TOM SWIFT AND HIS CHEST OF SECRETS
TOM SWIFT AND HIS AIRLINE EXPRESS
TOM SWIFT CIRCLING THE GLOBE
TOM SWIFT AND HIS TALKING PICTURES
THE DON STURDY SERIES
DON STURDY ON THE DESERT OF MYSTERY
DON STURDY WITH THE BIG SNAKE HUNTERS
DON STURDY IN THE TOMBS OF GOLD
DON STURDY ACROSS THE NORTH POLE
 DON STURDY IN THE LAND OF VOLCANOES
DON STURDY IN THE PORT OF LOST SHIPS
DON STURDY AMONG THE GORILLAS
DON STURDY CAPTURED BY HEAD HUNTERS

Grosset & Dunlap, Publishers, New York.

 CONTENTS
I. BLASTING FIRE
II. NED DISAPPEARS
III. SUSPICIONS
IV. A STRANGE MESSAGE
V. ON A MYSTERIOUS TRAIL
VI. TOO LATE
VII. A WILD CHASE
VIII. TWO CAPTIVES
IX. ON THE ISLAND
X. THE ESCAPE
XI. RESCUED
XII. GREENBAUM THREATENS
XIII. MR. DAMON DANCES
XIV. KOKU IS DRUGGED
XV. A SINISTER WARNING
XVI. A STARTLING DISCOVERY
XVII. USELESS PLEADINGS
XVIII. AN ANONYMOUS ADVERTISEMENT
XIX. THE MEETING
XX. MASKED MEN
XXI. A TEMPTING OFFER
XXII. FLASHING LIGHTS
XXIII. TOM ACCEPTS
XXIV. A FINAL TEST
XXV. A BRIGHT FUTURE
TOM SWIFT AND HIS TALKING
PICTURES
 CHAPTER I
BLASTING FIRE
Entering Tom Swift’s private laboratory from a room farther
down the hall, Ned Newton, who seemed somewhat out of breath,
glanced at the young inventor and asked:
“Do you seem to be getting anywhere with it, Tom?”
For a moment there was no reply. Tom, who had been leaning
over a complicated apparatus of wires, switches, and radio bulbs
that glowed dimly, was slowly turning a dial. Ned repeated his
question, adding:
“What seems to be the trouble?”
“Trouble?” queried Tom, looking at Ned with eyes, however, that
did not see him.
“There must be some trouble,” insisted Ned, “or you’d have been
capering around here on one leg when I came in after doing my stuff
back there,” and he nodded toward the room farther down the hall.
“How about it?”
Tom Swift glanced away from the apparatus, which very much
resembled a radio receiving set, to a yard-square burnished sheet of
metal hanging in front of him and connected to the other mechanism
by several wires. This burnished sheet appeared to be made of a
mirror of some metal with a square of heavy plate glass covering it.
“Can’t you answer?” inquired Ned, with a chuckle. “Boy, I
certainly did some acting back there all by myself! And I’d like to
know whether I got it through to you. Did I? Bet I did that song and
dance for the fiftieth time just now. Come on—wake up—did it come
through? What’s the matter, anyhow?”
“I—I’m thinking,” said Tom slowly.
 “Don’t need an interpreter to tell me that!” and again Ned
chuckled. “I can see it with half an eye. But was it a success?”
“Yes, and no,” replied Tom, turning a switch which seemed to cut
off some electrical current, for at once a faint hum that had been
audible in the laboratory ceased. “Yes, and no. It came through all
right; that is, part of it did, but the rest——”
Tom ceased speaking and bent over his apparatus. He adjusted
some set screws, turned a couple of dials, and changed three of the
radio tubes which, now that the power was cut off, no longer glowed
with light beneath the quicksilver coatings on the thin glass.
“Do you want me to go back there and do it over?” asked Ned.
“I’m willing, if you say so,” and he started for the room he had just left
—a room wherein, under the focused rays of a battery of powerful
lights and close to a box containing a strange assortment of tubes
and transmitters, Ned had done his “stunt,” which consisted of
singing and dancing about on a small stage. He performed alone—
there was no audience but the distant one of Tom Swift in his
laboratory several hundred feet away.
“Wait a minute, Ned!” Tom Swift called sharply, when his chum,
who was also the financial manager of the Swift Construction
Company, was about to leave the room. “I guess we might as well
call it a day’s work and quit.”
“A night’s work, you mean!” retorted Ned, pointing to the window
which reflected the darkness outside. “Must be past twelve.”
“I guess it is,” admitted the young inventor, somewhat wearily. “I
didn’t notice. It’s a shame to keep you at it so long, Ned.”
“Oh, I don’t mind!” said the other quickly. “Not as long as it’s
going to be a success. But is it?”
Tom Swift hesitated, looked at the complicated machine in front
of him and slowly shook his head.
“Frankly, Ned, I can’t say,” he admitted. “You came through in a
measure. Of course I heard you plainly enough over the radio—that
part is simple enough. But the picture of you was too shadowy to be
satisfactory. It’s coming, though. I’ll make it come!” and Tom, in spite
of his weariness, showed some fighting spirit in his voice and
manner.
“Could you identify me there?” and Ned pointed to that burnished
metal mirror with its covering of glass in the lower edge of which
were fused several wires.
“Oh, yes, I knew it was you, Ned, of course. But, as I say, the
projected picture was too visionary. It didn’t stand out clearly and
with depth the way I want it to. It was like a moving picture when the
man up in the booth goes to sleep on the job and the projector gets
out of focus. I’m rather disappointed.”
“I don’t mind going back and going through my stunt again, even
for the fifty-first performance,” offered Ned, with enthusiasm. “I don’t
care how late it is. Helen won’t expect me now.”
“Did you have an engagement?” asked Tom, looking sharply at
his friend. “And I kept you here doing a song and dance act half the
night when Helen expected you! That’s too bad! If I’d known——”
“Keep your hair on!” chuckled Ned. “I didn’t really have a date
with Helen. I said I might drop around if there wasn’t anything to do
here. But she knows you well enough to make allowances for
emergency work—and this was just that.”
“Yes, it is an emergency all right,” returned Tom slowly. “But I
shall give it up for the night. No use keeping you any longer, Ned. Go
on home and I’ll try it again to-morrow with a different wave length. I
think that’s where the difficulty is. We’ll tackle it again in the
morning.”
“All right,” assented Ned Newton, and he could not keep out of
his voice a little note of satisfaction and relief. Truth to tell, he was a
bit tired. For several weeks now he had been helping Tom Swift on
the latter’s newest idea—an invention, Tom declared, that would be
the greatest on record and one that would tend to revolutionize the
radio and moving picture industries.
This was a daring plan Tom had conceived of making a radio
machine, both sending and receiving, that would enable a person or
any number of persons not only to hear a distant performance in
their own home, but also see those taking part.
 “I’ll make it possible,” declared Tom Swift, “for a man to sit in his
easy chair, smoking a cigar in his library, and, by a turn of a switch,
not only to hear the latest opera but also to see each and every
performer and witness the whole play.”
When Ned had asked how the vision would appear to the man,
Tom had replied:
“On an electrified screen attached to his radio receiver by which
he listens to the songs and music.”
As Tom said, the problem of transmitting an entire opera through
the air was simple enough. That had been done many times. So had
the transmitting of photographs by wireless. Also, in a limited way,
television had made it possible for a person in a dark room to be
visible to lookers-on in another apartment some distance away.
“But I am going to combine the two!” declared Tom Swift. “I want
to make it possible for a synchronized performance of seeing and
hearing to take place. Thus when a theater is equipped with my
sending apparatus and I have perfected my receiver, one need never
go outside the house to enjoy a theatrical performance or a concert.”
“But even if you’re successful, you won’t make any money out of
it,” declared Ned Newton, after first hearing of his chum’s ambitions.
“Look at the radio people! The air is free. Anybody who wants to can
tune in and listen to a million dollar concert without paying a cent.
They don’t even have to buy any special kind of receiver—they can
roll their own, so to speak. What’s to prevent them from stealing your
stuff—your—what do you call it, anyhow?”
“I haven’t settled on a name,” Tom said, with a smile. “Call it
talking pictures for the time being. Of course it’s entirely different
from moving pictures with phonograph attachment.”
“Well, what’s to prevent any one from tuning in on your talking
pictures?” asked Ned.
“This,” answered Tom, pointing to a small tube on one side of the
receiving apparatus. “This is a new device. Without it no one can see
and hear my pictures that will talk. This is protected by patents and
no one can use it without my sanction. That’s the secret.”
“Well, maybe you’ve got something there,” Ned admitted.
 So, during the past months, he had helped Tom Swift bring the
new apparatus to such perfection as it now had.
The present night’s performance was only one of many. At first
there had been only blank failure. But by using different kinds of
receiving screens, finally settling on a mirror covered with electrified
glass, Tom had achieved a measure of success. Still, even now, the
projected image of the singing or talking performer in a distant room
was too dim to be commercially successful.
“We’ll go at it again to-morrow,” Tom told his chum as he let him
out of the laboratory and locked the door after him.
“It’s the biggest thing I ever attempted,” he said to himself, when
Ned had gone and he was alone in the room, “the very biggest, and
I’m not going to have it stolen from me. No one suspects as yet what
I am working on—no one except dad and Ned. But I wish I were
nearer success. I thought the image would come through clear to-
night, but there was that same haze—that same haze. I wonder——”
He paused and listened intently. Outside his door he heard
footsteps—cautious footsteps.
“Is that you, Ned?” he called. “Anything wrong?”
Tom did not open the door—he was taking no chances.
“That you, Ned?” he asked again, more sharply.
“No, Mr. Swift,” came back a voice with a foreign accent. “I am
just leaving my own laboratory. I think I have perfected that new
magnetic gear shift we have been working on.”
“That’s good,” Tom responded. He recognized the voice of Jacob
Greenbaum, a clever inventor whom he had recently engaged to
work on some side lines that occupied the Swift factory. Tom had an
idea for a new device to make easier the shifting of gears on
automobiles. It was an adaptation of the old magnetic selection that
has often been tried and which, up to date, had not been successful.
“Do you want to take a look at it?” asked Greenbaum, and from
the nearness of the voice Tom knew that the man was just outside
the locked door.
“No, thank you, Greenbaum, not now,” the young inventor replied.
“I am busy at something else. I’ll see you in the morning.”
 “You are working late, Mr. Swift,” went on the man. “Could I be of
any service to you? I should be glad——”
“No, thank you,” Tom said. “As for lateness, you are doing a bit of
overtime yourself.”
“Oh, yes; but I do not mind. I think I am on the right track. If you
would take a look——”
“No, not now,” and Tom’s voice was a bit sharp. “I am busy. Good
night!”
There was no response for a moment, and then came a short:
“Good night!”
Greenbaum, however, did not immediately move away from the
door and a look of annoyance passed over Tom’s face as he bent
over his secret apparatus.
“What’s he hanging around for?” thought Tom. “I wonder if he can
be a spy? Two or three times I’ve caught him lurking around my
private laboratory. But he can’t get in since I put on the new lock, and
I know he hasn’t so much as poked his nose in during the times I
have been here experimenting. Still, I wonder——”
He was about to call out, to tell the man to go away when
footsteps were heard moving down the corridor and toward the outer
door of the small shop where most of the experimental work was
carried on.
“Good riddance,” murmured Tom Swift. “I don’t want to be unjust
to a good workman, and Greenbaum is all of that, but I must confess
I don’t like the way he hangs around me. As soon as he finishes that
magnetic gear shift I’ll pay him well and let him go. Now let’s see if I
can think up another way of doing this. Perhaps if I hooked up the
wave distributor to the vibratory selector instead of to the polarizer
we’d get better vision. I’ll try that and have Ned perform again to-
morrow. Now I’ll take a look to see that my wire connections are all
right and then I think I’ll go to bed. I’m tired.”
Tom spent perhaps another half hour in getting things in
readiness for some new experiments, and, having made sure that
everything connected with his secret was put out of sight of possible
prying eyes, the young inventor started toward the door.
 He inspected the new combination lock he had had put on, noting
that it was properly set, and then opened the door to step out. The
experimental laboratory was only a short walk from Tom’s home, the
back of the Swift Construction plant being some distance away.
As Tom opened the door there was a click, followed at once by a
blinding flash of blasting fire. Then a dull explosion shook the
building. Tom had no chance to leap back. The force of the blast
hurled him forward, across the corridor and out through a wire-
screened window into the yard. He fell heavily, uttered an inarticulate
cry, and then seemed to be sinking down into a pit of dense
blackness.