- Approaching by KOTEC

- Focusing on KTRS(Kibo Technology Rating System)

Leo (Hee Chang) Park

Senior Manger
Technology Valuation Modeling Team
Korea Technology Finance Corporation(KOTEC)

KOTEC(KIBO) at a Glance
General Outlook of KTRS

Closer Look of KTRS

How to minimize Assessor Subjectivity

Other Issues

KOTEC(KIBO) at a Glance

Historical Background of KOTECs Foundation

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

2. Historical Background of Foundation in the late 1980s

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

Nut-Cracked btw. Japan and China

Technology Gap btw. Large and SMEs

Losing Momentum
led national consensus to boost technological innovation of SMEs

Why does the market need KOTEC ?

KOTECs role is vital in correcting the market failure and promoting the
commercialization of technologies

Government investment

Capital

Possibility to
waste Grants
R&D

Private investment
(private funding)

Market failure

(policy funding)

Death Valley

Market entry (Growth Stage)

Start-up

Growth

Maturity

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

KOTECs Role
KOTECs role is vital in supporting the whole life-cycle of technology
commercialization of SMEs (Total Business Solution for SMEs)
Technology
transfer/M&A
life-cycle of
technology
commercialization

Tech.
Appraisal
&
Business
Support

Loan
Guarantee
Based on
Tech.

R&D

Start-up

Commerci
alization

Growth
Maturity

TRM

Tech Valuation

R&D Planning

Feasibility study
Mentoring

R&D evaluation

Tech Valuation

KTRS Start-up

Certification
Consulting

KTRS and KTRS-based industry specific TRSs

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

Organization & Human Resources

Organization

Human Resources

Headquarters
Nation-wide
- 11 Departments
Technology Appraisal Centers
- 1 T/A Institutes
- 10 Regional T/A Headquarters
- 42 T/A Centers

Credit Guarantee Volume

Headquarters
Hybrid
- 6 Executives
Human Resources
- 210 Staffs
1,069 Staff in total
- including 553 T/A specialized
Staffs (129 PhDs)

T/A Performance

[unit*: bn]

2011

Sep. 2012

Guarantee balance

10.8

11.4

New Guarantee
Provision

2.6

2.6
* 1 = 1,600 KRW

[unit: cases]

Number of
technology
appraisals

2011

Sep. 2012

40,702

35,382

General Outlook of KTRS

KTRS is...

Decision Process Tool that screens promising

Technology
Not 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 a
firm

What makes KTRS Unique...

Focuses on technology based business prospects ,

without analyzing financial status of company
Heavily dependant on a statistical & mathematical
approach
Saving Cost and Time
- Speedy assessment with a limited number of Assessors

Minimizing Assessor Subjectivity

10

Structure of KTRS
Classification 2

Classification 3
(Indicator)

Owners
Technology
Capability
Module

Technology Experience

4 indicators

Management Capability

2 indicators

Management & Team Work

3 indicators

Technology Development &

Implementation Capability

2 indicators

Investment in Technology & R&D

3 indicators

Technological Innovation

3 indicators

Technological Completeness &

Expandability

3 indicators

Competitive Status

4 indicators

Product Competitiveness

3 indicators

Productibility of Technology and

Production Capability

2 indicators

Operational Capability

2 indicators

Profit Forecast

3 indicators

Technology
Module

Market
Module
Commercializa
-tion &
Profitability
Module

Risk level

Tech. biz
level

Scores or rating

11

R7

V8

Tech. biz appraisal

rating

BBB

General

Customized Indicators

Classification 1
(INDEX)

Bio

Environmental

Applied
To
7 Sectors

S/W

Medical

Design

Fusion

The Usage of KTRS ...

Providing Credit Guarantee

Credit loan

KOTEC

Banks

Consulting
-providing feedback to SMEs
Support on
Policy fund
Government

Investment
Venture Capital

KTRS

M&A
Companies
&
VCs

Technology transfer
Research Centers

13

Closer Look of KTRS

Structure of KTRS (1)

In Technology Level, the weights of technology innovation and business
possibility are measured through AHP Analysis
In Risk Level, Risk of Technology is computed from the correlation
between the factors and historical default data through Logistic
Regression
The final KTRS rating is the combination of Technology Level and Risk
Level through Matrix Structure
Success Probability

KTRS
Management Capacity

(V1 - V10)
Technological &
Commercial Viability

Technology Level

Technology

Technology
Rating
Grade

Marketability
Commercialization

Economic
conditions/
Corporate
environment
factors

Risks in Technology
Feasibility

Matrix

Grade : AAA D

Risk Level
Environmental Risk
Default Risk
(R1 - R10)

Structure of Technology Level

In Technology Level, the weights of technology innovation and
business possibility are measured through AHP Analysis
In Risk Level, Risk of Technology is computed from the correlation
between the factors and historical default data through Logistic
Regression
The final KTRS rating is the combination of Technology Level and Risk
Level through Matrix Structure
Success Probability

KTRS
Management Capacity

(V1 - V10)
Technological &
Commercial Viability

Technology Level

Technology

Technology
Rating

Marketability

Grade

Commercialization

Economic
conditions/
Corporate
environment
factors

Risks in Technology
Feasibility

Matrix

Grade : AAA D

Risk Level
Environmental Risk

Default Risk
(R1 - R10)

Structure of Risk Level

In Technology Level, the weights of technology innovation and business
possibility are measured through AHP Analysis
In Risk Level, Risk of Technology is computed from the correlation
between the factors and historical default data through Logistic
Regression
The final KTRS rating is the combination of Technology Level and Risk
Level through Matrix Structure
Success Probability

KTRS
Management Capacity

(V1 - V10)
Technological &
Commercial Viability

Technology Level

Technology

Technology
Rating
Grade

Marketability
Commercialization

Economic
conditions/
Corporate
environment
factors

Risks in Technology
Feasibility

Matrix

Grade : AAA D

Risk Level
Environmental Risk
Default Risk Probality
(R1 - R10)

Process of KTRS Rating -Matrix

The final KTRS rating is the combination of Technology Level and
Risk Level through Matrix Structure
Tech.Level
Risk Level

V1

V2

R1

AAA

R2

AA

R3

V3

V4

V5

V6

V7

V9

R4

BBB

R5

BB

R6

R7

CCC

R8

R9

V8

CC

CC

R10

Matrix Combination of Tech. Level and Risk Level

17

17

V10

How to Measure Technology Level?

Indices came from...
Academic papers
Assessors experience
Experts opinion

Finding Key
Success/Risk
Factors
Selecting & Structuring

Input Variables
34 factors Data

Scoring
Model

f(y) = 1(X1)+12(X12)+ 13(X1)+.+ 34(X34)

Technology
Level
(V1 - V10)

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 its
technological ability and business prospects
*AHP(Analytic Hierarchy Process)

How to Measure Risk Level?

f(y) = 1(X1)+12(X12)+ 13(X1)+.+ 34(X34) + e1(Xe1)+.

Economic environmental
factors ( 7)
SME Production Index
Business Survey Index(BSI)
price index
Foreign exchange rate
Interest Rate, etc.

Corporate
environment factors
(5)

Input Variables
34 rating factors data

Logit Model

Risk Level

Economic environment variables

Corporate environment variables

(R1 -R10)

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

Certified Venture firms

ROI

Certified InnoBiz firms

Firms subject to
external audit

20

How to minimize Assessor Subjectivity

Minimizing Assessor Subjectivity(1)

Detailed Guidelines of Indicators

(Quantitative, Check-list Methods)

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

Quantitative Indicators (SAMPLE)
Classification 1 (INDEX)

: Technology Module

Classification 2

: Technology Development & Implementation Capability

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 points
for intermediate technicians, 2 points for beginners and 1 point for other technicians are given for the
appraisal.
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 are
applied.
Grade A

Grade B

Grade C

Grade D

Grade E

General/Bio
/Envi. Etc.

20 points or
more

15 points or
more

10 points or
more

5 points or
more

Below 5 points

S/W

25 points or
more

19 points or
more

13 points or
more

6 points or
more

Below 6 points

Minimizing Assessor Subjectivity(2)

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

Consistency

2
2

2
4

Tendency (Generous)

Tendency(Rigorous)

Too Generous

Too Rigorous

Lack of Consistency

Too Extreme tendency & Lack of

Consistency

Minimizing
Assessor
Subjectivity(3)
3. Minimizing
Assessor
Subjectivity
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 and
thesis, and academic journals
Serve the information through the intranet

Academic Journal
Thesis
Tech Rating Reports

Evaluators Research

TIA(technology Information Architecture)

718 Information on Tech
1,161 Information on Market
Classified into 9 Different Sectors

Machinery, Mechanical Engineering, Green Tech.

Electronics, ICT, Bio, New Material, Chemicals

Validity of KTRS

25,00%
21,70%

20,00%
15,00%

12,20%

10,00%

9,40%
6,40%

5,00%
0,00%

4,00%
1,60%

0,00%
AAA
AA

BBB
Rating

BB

Shows High Correlation between KTRS grade

And Default in a real case

Loan Default vs. Rating

CCC

4.7 % on Avg.
Well managed Under KOTECs Target (5-6%)

25

Other Issue

Transferability

Practical Challenges

Lack of statistical data

Lack of staff (assessors)
Cultural differences
Weights of indicators
Patent

Possible Solutions

Surveying real default

cases
Using the external Pool
Most indicators are not
different from TechRate
You can change via AHP
KOTEC will be open to
collaboration

leopark91@gmail.com

Thank you!
Merci!
Dan wel!
Danke Schn!
Tack s mycket!
Dziekuje!
Hvala!
Kiitos!

Appendix 1

Academic Background Behind of KTRS

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)

28

PATENTS of KTRS

Overview

29

KTRS and Feedback System are Patented

Appendix 2

Appendix 3

KTRS vs. Credit Rating System

KTRS

Credit Rating System

Output of Matrix of Technology

Level and Risk Level(Insolvency)

Focus on Companys
future potential
Non-Financial Measure is
dominant
ex) Technology Excellence
Business Feasibility

30

Forecast Corporations
Insolvency

Focus on Companys
past history
ex) Financial Records

Owners Credit Level

Financial Model is dominant

Appendix 4

KTRS Vs. TechRate

They have a lot

in common
KTRS

Four Modules (34 key factors)

Modules

Importance

Method

Four Modules (24 key factors)

- Management Capacity

- Marketing

- Technology

- Technologie

- Marketability

- Management

- Business Feasibility

- Finance

Capacity of Entrepreneurs

Capacity of Entrepreneurs

AHP(Analytic Hierarchy Process)

Logistic Regression

31

TechRate

AHP(Analytic Hierarchy Process)

Appendix 5

KTRS Vs. TechRate

But There are Still a few differences

KTRS
Business Risk

Focus

TechRate
Key Success Factors of Technology

- Relationship of Factors and Risk

Using Financial Data

Key Success Factors of Technology

- Financial History

De-emphasis on Financial Data

- Funding Capacity

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

Objectivity

Focuses on Consistency of Evaluation

Screening the beneficiaries of Financial

Uses

Support (including Credit Guarantee)

Certificate, Competition
Valuing R&D Projects

32

Grants Autonomy of Investigators

Start-up Competition
Limited Use for Financial Support

Appendix 5

Development of KTRS
National Authorization of Technology
Appraisal Ratings with KTRS
Phase I
Up to 2006
Groundwork for T.A.
Rating and Certification
Rating Certificate enables
Bank Loans with no
Guarantee
- 430 Certificates
222 loans amounting
13.2 million USD

Phase II

Phase III

2007 2009

After 2010

Disclosure of KTRS
Results

Authorization of KTRSBased Ratings

Default rate by T.A.

Ratings are disclosed

- Opened to Public since

March, 2007

T.A Ratings Replaces

Conventional Credit
Ratings
- Fine Tuning of KTRS
- Methodology to up to date

33