Leo Park Supporting Innovative SMEs in Korea

8/17/2019 Leo Park Supporting Innovative SMEs in Korea

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- Approaching by KOTEC- Focusing on KTRS(Kibo Technology Rating System)

Leo (Hee Chang) ParkSenior MangerTechnology Valuation Modeling Team

Korea Technology Finance Corporation(KOTEC)



KOTEC(KIBO) at a Glance

2

General Outlook of KTRS

3

Closer Look of KTRS

4

How to minimize Assessor Subjectivity

5

Other Issues



3

KOTEC(KIBO) at a Glance



4

1. Establishment

2. Historical Background of Foundation in the late 1980’s

…led national consensus to boost technological innovation of SMEs

Major Businesses:

- Operating loan guarantees to technology-based SMEs- Providing technology appraisal service to Government , Bank, and Investors- Others: Direct Investment, Consulting, and Corporate Restructuring., etc

Historical Background of KOTEC’s Foundation

• Nut-Cracked btw. Japan and China• Technology Gap btw. Large and SMEs

• High Economic Growth Rate• GNI : US$ 154 in 1953 -> US$20,000 in 1989

Losing Momentum

Economic Miracle

Founded in April 1989 under Special Act (Korea Technology Credit Guarantee Fund Act)



KOTEC’s role is vital in correcting the market failure and promoting thecommercialization of technologies

KOTEC represents a useful alternative with a low investment culture

for start-ups and technologically innovative SMEs

The Technology Rating of KOTEC (KTRS) also works as effective

Screening Measure to finding promising technology of Start-ups

Market failureGovernment investment

(policy funding)

C a

p i t a l

R&D

Private investment(private funding)

Death Valley

Start-upMarket entry (Growth Stage)

Growth Maturity

Possibility towaste Grants

Why does the market need KOTEC ?



KOTEC’s role is vital in supporting the whole life-cycle of technology

commercialization of SMEs (Total Business Solution for SMEs)

KOTEC’s Role

Commerci

alizationGrowth

Maturity

Technology

transfer/M&A

R&D Start-up

TRM

R&D Planning

Tech Valuation Tech Valuation

Feasibility study Certification

Mentoring Consulting

R&D evaluation KTRS Start-up KTRS and KTRS-based industry specific TRSs

- One person biz- Innovative-knowledge based service evaluation- Cultural Contents Evaluation

Tech.Appraisal

&BusinessSupport

LoanGuaranteeBased on

Tech.

life-cycle of

technology

commercialization



Organization

Headquarters

- 11 Departments

Technology Appraisal Centers

- 1 T/A Institutes

- 10 Regional T/A Headquarters

- 42 T/A Centers

Human Resources

Headquarters- 6 Executives

- 210 Staffs

1,069 Staff in total

- including 553 T/A specialized

Staffs (129 PhDs)

Organization & Human Resources

2011 Sep. 2012

Guarantee balance 10.8 11.4

New GuaranteeProvision

2.6 2.6

2011 Sep. 2012

Number oftechnologyappraisals

40,702 35,382

T/A PerformanceCredit Guarantee Volume

[unit*: bn€] [unit: cases]

* 1 € = 1,600 KRW

HybridHuman Resources

Nation-wide



2

General Outlook of KTRS



Decision Process Tool that screens promising

TechnologyNot Just look at Technology Level itself but

focusing on Business Feasibility of technology

…. If a technology has no practical value, there is no point in providing Government Support

Combination of the technology-oriented appraisal

factors and the real insolvency(default) risks of afirm

9

KTRS is...



Focuses on technology based business prospects ,without analyzing financial status of company

Heavily dependant on a statistical & mathematicalapproach

Saving Cost and Time

- Speedy assessment with a limited number of Assessors

Minimizing Assessor Subjectivity

10

What makes KTRS Unique...



Scores or rating

Risk level Tech. bizlevel

Tech. biz appraisalrating

( R7 ) ( V8 ) ( BBB )

Structure of KTRS

Classification 1(INDEX)

Classification 2 Classification 3(Indicator)

Owner’s

TechnologyCapabilityModule

Technology Experience 4 indicators

Management Capability 2 indicators

Management & Team Work 3 indicators

TechnologyModule

Technology Development &Implementation Capability

2 indicators

Investment in Technology & R&D 3 indicators

Technological Innovation 3 indicators

Technological Completeness &Expandability

3 indicators

MarketModule

Competitive Status 4 indicators

Product Competitiveness 3 indicators

Commercializa-tion &

ProfitabilityModule

Productibility of Technology andProduction Capability

2 indicators

Operational Capability 2 indicators

Profit Forecast 3 indicators

General

Bio

Environmental

S/W

Medical

Design

Fusion

AppliedTo7 Sectors

C u s t o m i z e d

I n d i c a t o r s



Credit loan

Investment Technology transfer

Providing Credit Guarantee

KTRSM&ASupport on

Policy fund

KOTEC

Research Centers

Banks

Companies&

VCs

Venture Capital

Government

The Usage of KTRS ...

Consulting -providing feedback to SMEs



3

Closer Look of KTRS



In Technology Level, the weights of technology innovation and businesspossibility are measured through AHP Analysis

In Risk Level, Risk of Technology is computed from the correlation

between the factors and historical default data through LogisticRegression

The final KTRS rating is the combination of Technology Level and RiskLevel through Matrix Structure

Risks in TechnologyFeasibility

TechnologyRatingGrade

Risk LevelEconomic

conditions/Corporate

environmentfactors

Environmental Risk

Technological &Commercial Viability

Matrix

KTRS

Management Capacity

Technology

Marketability

Commercialization

Technology Level

Grade : AAA – D

Success Probability

V1 - V10)

Default Risk

R1 - R10)

Structure of KTRS (1)



In Technology Level, the weights of technology innovation andbusiness possibility are measured through AHP Analysis





TechnologyRating

Grade

Risk LevelEconomic


environmentfactors

Environmental Risk


Matrix

KTRS

Management Capacity

Technology

Marketability

Commercialization

Technology Level

Grade : AAA – D

Success Probability

V1 - V10)

Default Risk

R1 - R10)

Structure of Technology Level



In Technology Level, the weights of technology innovation and businesspossibility are measured through AHP Analysis





TechnologyRatingGrade

Risk LevelEconomic


environmentfactors

Environmental Risk


Matrix

KTRS

Management Capacity

Technology

Marketability

Commercialization

Technology Level

Grade : AAA – D

Success Probability

V1 - V10)

Default Risk Probality

R1 - R10)

Structure of Risk Level


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Tech.Level

Risk Level V1 V2 V3 V4 V5 V6 V7 V8 V9 V10

R1 AAA

R2 AA

R3 A

R4 BBBR5 BB

R6 B

R7 CCC

R8 CC

R9 CC CR10 D

Matrix Combination of Tech. Level and Risk Level

Process of KTRS Rating -Matrix

The final KTRS rating is the combination of Technology Level andRisk Level through Matrix Structure



How to Measure Technology Level?

34 factors Data

Input Variables

Scoring Model from AHP *analysis

• Using expert-advised questionnaires, give weighted value to questions

• Give different weighted scores by industries

• Rate business success prospects of the technology in terms of itstechnological ability and business prospects

*AHP(Analytic Hierarchy Process)

Scoring

Model

Technology

Level

Indices came from...

• Academic papers• Assessors’ experience • Experts‘ opinion

Finding Key

Success/RiskFactors

Selecting & Structuring

V1 - V10)

f (y) = ß1·(X 1)+ß12·(X 12)+ ß13·(X 1)+….+ ß34·(X 34)



Logit Model Risk Level

Input Variables

Risk Level from Logistic Regression analysis

(used Factor Analysis & Principal Component Analysis, Logit Regression)

• Analyzed 22,445 data (Tech. Appraisal Guarantee data) collected from ’99

using statistical techniques

• Unlike general credit rating models based on financial variables,

this Logit model is designed to measure technology-related risks

34 rating factors data

Economic environment variables

Corporate environment variables

How to Measure Risk Level?Economic environmental

factors ( 7)

• SME Production Index• Business Survey Index(BSI)

price index• Foreign exchange rate• Interest Rate, etc.

Corporateenvironment factors

(5)• Certified Venture firms

• ROI• Certified InnoBiz firms

• Firms subject to

external auditR1 -R10)

f

(y) = ß1·(X

1)+ß12·(X

12)+ ß13·(X

1)+….+ ß34·(X

34) + ße1·(X

e1)+….



20

4

How to minimize Assessor Subjectivity



Minimizing Assessor Subjectivity(1)

(Quantitative, Check-list Methods) Detailed Guidelines of Indicators

- 19 indicators including quantitatives and check-lists out of 34 indicators

Quantitative Indicators (SAMPLE)

Classification 3 (Indicator) : Technology (Design) Personnel Evaluation Target: Company

After examining the technology development personnel (applying technology qualification and educational

quotient) as of the appraisal date, 5 points for special technicians, 4 points for advanced technicians, 3 pointsfor intermediate technicians, 2 points for beginners and 1 point for other technicians are given for theappraisal.

※ Point calculation formula : 5 points x (“acquired points”/ “highest standard points by industry”) In the event that the acquired points exceed the highest standard points, the highest standard points areapplied.

Grade A Grade B Grade C Grade D Grade E General/Bio

/Envi. Etc. 20 points ormore

15 points ormore

10 points ormore

5 points ormore

Below 5 points

S/W 25 points ormore

19 points ormore

13 points ormore

6 points ormore

Below 6 points

Classification 2 : Technology Development & Implementation Capability

Classification 1 (INDEX) : Technology Module




Feed-back System

- the system provide the relative position of evaluator

by providing the Mode(average) and standard deviation of others- Monitoring the “Tendency” and “Consistency” of an evaluator

1

4

3

3 4

4 4

2

Consistency

T

en d en c y ( R i g or o u s )

T e

n d en c y

( G en er o u s )

•Too Generous

1•Too Rigorous2

•Lack of Consistency3

•Too Extreme tendency & Lack of

Consistency4

2σ

2σ

2σ

2σ



Overview ▣Technology is rapidly changing and needs specific knowledge

★ Hard to get information on Technology and Market▣ Research and compile information from in-house PhDs andthesis, and academic journals▣ Serve the information through the intranet

3. Minimizing Assessor Subjectivity

Academic Journal

Evaluator’s Research

Tech Rating Reports

Thesis 718 Information on Tech

TIA(technology Information Architecture)

1,161 Information on Market

Classified into 9 Different SectorsMachinery, Mechanical Engineering, Green Tech.Electronics, ICT, Bio, New Material, Chemicals




Validity of KTRS

Loan Default vs. Rating

0,00% 1,60%

4,00%

6,40%

9,40%

12,20%

21,70%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

AAA AA A BBB BB B CCC

Rating

S h o w s H i g h C o r r e l a t i o n b e t w e e n K T R S g r a d e

A n d D e f a u l t i n

a r e a l c a s e

4.7 % on Avg.Well managed Under KOTEC’s Target (5-6%)



25

5

Other Issue



Transferability

Practical Challenges

Lack of statistical data

Lack of staff (assessors)

Cultural differences

Weights of indicators

Patent

Possible Solutions

Surveying real defaultcases

Using the external Pool Most indicators are not

different from TechRate ®

You can change via AHP

KOTEC will be open tocollaboration



Thank you!

Merci!Dan wel!Danke Schön!Tack så mycket!

Dziekuje!Hvala!Kiitos! [email protected]

http://www.kibo.or.kr/



28

AHP(Analytic Hierarchy Process) Analysis

• A frame work used for Multi-criteria decision making

• Methods of weight calculation using matrix equation

• Derives ratio scales from paired comparisons of criteria.

• Used for deriving weights of technology appraisal indicators

Logistic Regression Model• A technique of regression analysis used to determine which variable is significant by

using formula that classifies a group after expressing correlation between the

independent success factors(key indicators) and the subordinate variables(default)

• ex) Does a student good at math go to Ivy League?

• Is the level of the number of patents related with the default ratio?

• KOTEC tracked down the correlation every 34 factors and defaults

from the historical data (22,445 cases for five years)

Academic Background Behind of KTRS

Appendix 1



29

PATENTS of KTRS

OverviewKTRS and Feedback System are Patented

Appendix 2



30

Output of Matrix of Technology

Level and Risk Level(Insolvency)

Focus on Company’s

future potential

Non-Financial Measure is

dominantex) Technology Excellence

Business Feasibility

Forecast Corporation’s

Insolvency Focus on Company’s

past history

ex) Financial Records

Owner’s Credit Level

Financial Model is dominant

KTRS redit Rating System

KTRS vs. Credit Rating System Appendix 3



31

KTRS TechRateⓡ

Four Modules (34 key factors)

- Management Capacity

- Technology

- Marketability

- Business Feasibility

Four Modules (24 key factors)

- Marketing

- Technologie

- Management

- Finance

Modules

Capacity of Entrepreneurs Capacity of EntrepreneursImportance

AHP(Analytic Hierarchy Process)

Logistic RegressionAHP(Analytic Hierarchy Process)Method

KTRS Vs. TechRate

They have a lot in common…

Appendix 4



32

KTRS TechRateⓡ

Business Risk

- Relationship of Factors and Risk

Key Success Factors of Technology

De-emphasis on Financial Data

- One Financial Ratio(R&D Invest. Ratio)

Key Success Factors of Technology

Using Financial Data

- Financial History

- Funding Capacity

Focus

Focuses on Consistency of Evaluation Grants Autonomy of Investigators Objectivity

Screening the beneficiaries of Financial

Support (including Credit Guarantee)

Certificate, Competition

Valuing R&D Projects

Start-up Competition

Limited Use for Financial Support Uses

But There are Still a few differences

KTRS Vs. TechRate Appendix 5



33

Phase I Phase II Phase III

National Authorization of TechnologyAppraisal Ratings with KTRS

Up to 2006

Groundwork for T.A.Rating and Certification

Rating Certificate enablesBank Loans with no

Guarantee

- 430 Certificates222 loans amounting13.2 million USD

2007∼ 2009

Disclosure of KTRSResults

Default rate by T.A.

Ratings are disclosed

- Opened to Public since

March, 2007

After 2010

Authorization of KTRS-

Based Ratings

T.A Ratings Replaces

Conventional Credit

Ratings

- Fine Tuning of KTRS

- Methodology to up to date

Appendix 5Development of KTRS

Documents

Leo Park Supporting Innovative SMEs in Korea