This thesis reports on the results of a research study conducted by the Institute for Information Technology, National Research Council, over the summer of 2001. The study assessed the relevance of an emerging valuation approach known as real options to small technology-based firms. The approach addresses evaluation of investment decisions under uncertainty by viewing a firm's ability to respond to changing conditions as a bundle of options that can be exercised at the right time and under the right conditions.<br /><br /> Interviews were conducted with the representatives of the six participating firms, who found the concept of real options appealing. <br /><br />Systematically scanning different functional areas for possible sources of uncertainty can help identify viable option scenarios in a firm. The functional areas include operations, procurement, R&D, IP management, distribution, sales, after-sales, finance, strategic planning, marketing, and IT infrastructure. Such a methodology can help to reveal opportunities that may otherwise be overlooked or remain implicit. <br /><br />The scenarios discovered in the firms under study involved staged investments, partnerships with lead customers, patents, arrangements for securing manufacturing capacity, flexible pricing strategies, make or buy decisions, design of a product to allow outsourcing, right to buy out licensed IP, IT infrastructure initiatives, and flexible core technology. Rudimentary quantitative analyses of selected option scenarios confirmed their potential value. Some classical option scenarios reported in the literature were rejected. For example, exit strategies were not deemed viable real options by start-up firms.