On Valuing Science-Based Business Ventures

Investigation on performativity in entrepreneurial finance carried out within the context of the PERFORMABUSINESS research project draws in part from the insights accumulated by team members in previous research. This is particularly the case for Liliana Doganova’s recent book, Valoriser la Science: Les Partenariats des Start-Up Technologiques [Valuing Science: The Partnerships of High-Tech Start-Ups], which just got out from Presses des Mines. Liliana tackles there the case of academic spin-offs from an openly pragmatist angle.

Academic spin-offs are new ventures stemming from universities and other public research organizations. The creation of such spin-offs has been greatly encouraged in Europe in the last ten years, in order to enhance the “transfer” and “valorization” of science. The results of such policies now appear to be disappointing, because spin-offs have not generated the hoped-for new jobs and success stories. This book hence starts with the following question: what are spin-offs worth? How can one conceive of their role and capture their impact?

Addressing these questions, the book operates several shifts, one of which is of particular interest for PERFORMABUSINESS. To understand what spin-offs are worth, suggests Liliana, let us take a look at how the actors with whom they come to cooperate value them. The how in question refers in particular to the valuation devices that start-ups and their (would-be) partners devise and mobilize in their endeavors to construct explorative partnerships, make them hold, and coordinate collective action. The last chapter of this book embarks on the investigation of three types of valuation devices – models, demonstrations, and formulae – and sheds light on their performative action. It thus opens a path that Liliana has decided to pursue as part of her research in PERFORMABUSINESS.

Marx and Capitalization

So what is capitalization about? And what would a social inquiry into capitalization look like? In a recent post, it was suggested that a social inquiry into capitalization requires “understanding capital not as a thing in itself — something that one has or has not — but rather as a form of action, a form of grip, a form of power, an act of configuration, an operation, a situation”. Where such an inquiry can draw inspiration from? Karl Marx’s analysis of capital as a “social relation” appears as an obvious place to start with.
In a chapter of Capital entitled “The Modern Theory of Colonisation”, Marx took up the story of Thomas Peel, a colonial promoter and early settler at Swan River, whose misfortunate venture had earlier been described by Edward Gibbon Wakefield in his book England and America (1833):

“Mr. Peel, [Wakefield] moans, took with him from England to Swan River, West Australia, means of subsistence and of production to the amount of £50,000. Mr. Peel had the foresight to bring with him, besides, 300 persons of the working class, men, women, and children. Once arrived at his destination, “Mr. Peel was left without a servant to make his bed or fetch him water from the river.”” (Marx, Capital, chapter XXXIII)

Wakefield had used Mr. Peel’s story to develop his theory of “systematic colonization”, arguing in particular that the price of land should be made high enough to ensure the availability of labour — otherwise, the labourers whom capitalists brought with them to the new settlements would do as those who came with Mr. Peel did: leave, to find their own piece of land. Marx, instead, used Mr. Peel’s story to depict capital as a social relation, rather than “a thing”. Mr. Peel’s problem, Marx wrote, was that he had “provided for everything except the export of English modes of production to Swan River”. And Wakefield’s real finding, Marx claimed, did not have to do with colonies and their management, but with the nature of capital: what Wakefield discovered, through Mr. Peel’s story, was that capital “is not a thing, but a social relation between persons [the capitalist and the wage-worker], established by the instrumentality of things”.

Marx reiterated this point in a chapter of Wage Labour and Capital entitled “The Nature and Growth of Capital”:

“Capital consists of raw materials, instruments of labour, and means of subsistence of all kinds, which are employed in producing new raw materials, new instruments, and new means of subsistence. All these components of capital are created by labour, products of labour, accumulated labour. Accumulated labour that serves as a means to new production is capital.
So say the economists.
What is a Negro slave? A man of the black race. The one explanation is worthy of the other.
A Negro is a Negro. Only under certain conditions does he become a slave. A cotton-spinning machine is a machine for spinning cotton. Only under certain conditions does it become capital. Torn away from these conditions, it is as little capital as gold is itself money, or sugar is the price of sugar.” (Marx, Wage Labour and Capital, chapter 5)

It is precisely in this process through which something “becomes capital” — i.e., capitalization — that we are interested. And there are two insights that we can draw from here. The first one has to do with conditions. For Marx, things become capital “only under certain conditions”, and these conditions are of a socio-material texture, they are made of “social relations … established by the instrumentality of things”. Studying the capitalization of a molecule today, for example, would entail describing the encounter between an investor and a scientist-entrepreneur and their interactions mediated by tools like business plans, Powerpoint presentations and valuation formulae. The second insight has to do with consequences. For Marx, while things become capital, “they serve at the same time as means of exploitation and subjection of the labourer” (Capital, chapter XXXIII). In a certainly less critical take, turning molecules into capital, to continue the example, goes hand in hand with turning scientists into entrepreneurs. A social inquiry into capitalization would thus involve an exploration of the kinds of objects and subjects that are produced in the contemporary settings of capitalization.


‘Cousin Thomas, or the Swan River Job’, an 1829 caricature of Thomas Peel by Robert Seymour. Source: National Library of Australia.

Thomas is exclaiming “Cousin Bob’s letter did the job I shall feather my nest however.”

On the left is a sign post “The best parts of the Swan River Settlement only to be got at through the hands of Mr. Thos P–l!!”

Researching Valuation Practices in China

Horacio Ortiz, a post-doctoral researcher at the CSI (Mines ParisTech) and a member of the PERFORMABUSINESS team, is in a long-term research mission in Shanghai. His research is concerned with the interaction between institutional settings, organizational issues, and methods of valuation and investment. These are dynamic processes that change with time and that are different from one setting to another, with multiple conflicts, crossings, hybrids and inventions occurring along the way. Horacio’s research is currently focused on China, with the aim of allowing for a comparative perspective with other settings.

Some of the questions explored are:

Institutional context:
–    What are the sources and the orientations of funds?
–    What types of operations are possible?
–    What kind of financial institutions exist, what are their relations of forces, their complementarities, their strategies and challenges?
–    What is the economic, social and political environment in which this takes place?

Organizational issues:
–    What are the businesses in which these companies are engaged?
–    What is the internal hierarchy and the distribution of responsibilities?
–    What is the relation with clients and commercial partners? How is it related to the internal organization?
–    Who uses which methods of valuation and investment for what kind of operations? Within which strategies?

Methods of valuation and investment:
–    What methods, models, formulas are used for which operations? According to which rationale?
–    What are the expectations and assumptions implied in the use of these methods?
–    What are the alternatives or the conflicts between methods?

Answers to these and comparable questions aim at contributing to the understanding of the reality of financial practices today.

A Flank Movement in the Understanding of Valuation

In a recent paper titled “A flank movement in the understanding of valuation”, Fabian Muniesa (PERFORMABUSINESS team member and principal investigator) develops some of the pragmatist tenets that inspire the project’s approach to the study of valuation. The paper is available here as a contribution to a special issue of The Sociological Review on “Measure and Value” edited by Lisa Adkins and Celia Lury (see here and here for a presentation of the special issue). From the abstract:

“The sociological understanding of valuation often starts with an idea of value as something that something has by virtue of how people consider it (that is, it is socially constructed, a convention, a social representation, a projection). At some point, however, analysis also often draws a contrast between this sort of appraisal and some other type of value that the thing may have as a result of its own condition (what it costs, how it is made, with what kind of labour, money and materials, what it is worth in relation to objective standards and fundamental metrics). Dissatisfaction with this binary approach has been expressed in various quarters, but the pragmatist contribution of John Dewey provides a particularly useful resource with which to engage with the subject. This article reviews some aspects of this dissatisfaction, with a focus on the pragmatist idea of valuation considered as an action. I discuss this idea in relation to financial valuation, referring in particular to early pedagogical materials on corporation finance elaborated in the context of the professionalization of business administration. Finally I elaborate on the usefulness of a pragmatist stance in the understanding of financial valuation today.”