KTRS is an evaluation tool through which the commercial viability and risks associated with a certain technology project or an SME are assessed in relation to other SMEs in the same industry. In-depth analysis can be performed by KTRS on such factors as technological competence, market situation and growth potential of the rated technology project.
Technology Rating is presented as an outcome of the assessment. The rating shows a relative standing of the rated SME in terms of technological prowess and credit risk in comparison with the other SMEs, serving as an input to the decision-making process as to whether to provide financing.
Provided along with the rating is the 'Technology Appraisal Report' which contains the details pertaining to the final rating, key rating considerations as well as a brief snapshot of the rated company.
KTRS (Kibo Technology Rating System) is a well-structured, data-driven and quantitative method to assess technology project or company. It is a great challenge to evaluate and rate the technological competency and market potential of tech SMEs. Nonetheless, KOTEC blazed a new trail for the technology rating by developing and launching KTRS. Main features of the KTRS is as follows.
Assessment is performed by taking into account four modules (Management, Technology Prospects, Marketability, Business prospects). Each module is reduced into 3 to 4 interrelated smaller sub-categories and these sub-categories are again broken down into the diverse 'technology appraisal indicators'. This hierarchical approach was taken to ensure logical consistency. A logical approach (AHP) is employed to design the hierarchical structure.
Among the indicators, many of them can be assessed in a quantitative manner. It is quite contrary to other technology evaluation practices which rely on expert's qualitative judgements and subjective opinions to a great extent.
Many parts of the rating process is performed systematically by vast amount of data automatically arriving in the system. Information on macroeconomic indicators and other external variables is provided from various sources.
In order to prevent evaluators' subjectivity, KTRS is equipped with a feedback system which provides feedback to them and let them review their assessment again after a statistical comparison with the previous results of similar appraisal cases.
Unlike typical credit rating approaches focusing on financial performance and credit history of the company, KTRS puts more emphasis on the company’s future potential and non-financial aspects such as the technological excellence and growth outlook.
KTRS was first patented on Korea in 2007. An international patent was also granted in Singapore in 2008. KTRS is also patent pending in Japan and China. The feedback system is also patented.
Main feature of the KTRS structure is the combination of technology assessment and risk analysis. Usually evaluation on technological competitiveness and analysis of creditworthiness are separately conducted. In contrast, KTRS integrates technology evaluation with conventional credit rating system, as it puts greater value on the technological factors of companies.
Clear understanding on them enables the evaluators to better assess the risks involved in financing in tech SMEs. The figure below illustrates the structure of the KTRS methodology.
KTRS Technology Appraisal Indicators : technology appraisal indicators that measure technological capability, marketability and commercial viability of technology projects undertaken by innovative SMEs
External Environmental Variables : external factors such as interest rates, economic cycle and other macro-economic variables. Related information automatically arrives at the rating system
Internal Environmental Variables : company's risk to commercialization
Rating is conducted to produce the final rating which is determined by combination of technology business score and risk score.
The technology business score is calculated by assigning ratings to each of indicators on a scale from A to E. The final score is determined by a weighted combination of these indicator ratings based on an AHP (Analytic Hierarchical Process) analysis.
The risk score is a quantification of the risk associated with the company based on the company’s own commercialization risks and external risks in the environment.
A final rating is produced by combining the two scores. The ratings range from AAA to D. The rating produced by the model is a measure of the riskiness and technology potential of a given technology project or a company. It is directly related to the probability of default of the corresponding business.
|AAA||The company is at the highest level of technology commercialization capability and stable enough not to be affected by some any reasonably predictable changes in the future environment.|
|AA||The company is at a high level of technology commercialization capability with an extremely low possibility of default, though it is likely to be affected, to some degree, by some drastic changes in the environment.|
|A||The company is at a high level of technology commercialization capability with a low possibility of default, though it may be affected by some drastic changes in the environment.|
|BBB||The company is at a high level of technology commercialization capability with a low possibility of default, though it may be affected by some changes in the environment.|
|BB||The company has an excellent technology commercialization capability with a low possibility of default. However, it may be affected by some changes in the environment considerably.|
|B||The company has a moderate technology commercialization capability and the possibility of default can not be ruled out.|
|CCC||The company is likely to face default due to insufficient technology commercialization capability. However, the feasibility of overall business operation exists.|
|CC||Possibility of default exists due to insufficient technology commercialization capability.|
|C||Default is more likely to arise due to insufficient technology commercialization capability|
|D||Default is highly likely to arise due to insufficient technology commercialization capability.|
Based on KTRS, a variety of technology appraisal models were developed to meet diverse demands from various tech sectors and to better respond to changing technology landscape and government's new policy initiatives. The diagram below gives an overview of the current appraisal models used for various appraisal purposes. It also represents KOTEC's ceaseless effort to refine the system and expand its usage.
KOTEC has been actively transferring its knowledge and experiences related with design and use of KTRS to foreign countries. Thanks to keen interest from abroad, KTRS has gained a widespread recognition as a good practice in financing innovative projects or SMEs.
European Investment Bank (EIB) introduced KTRS as one of the best solutions for alleviating tech SMEs' credit constraints, recommending it "as the only quantitative tech assessment tool that has been developed specifically for highly innovative companies such as Key Enabling Technologies*".
* Source: Financing the Deep Tech Revolution: How Investors assess risks in Key Enabling Technologies, March. 2018
Collaboration with overseas partners
Over the past few years, KOTEC has been transferring its KTRS expertise to various countries including Vietnam, Thailand and Peru, building up a solid foundation for global demand for KTRS in emerging economies. In collaboration with experts from KOTEC, partner institutions in Thailand and Vietnam have built their own technology rating systems.
Capitalizing on its reputation on KTRS, KOTEC signed a Memorandum of Understanding with the European Investment Bank in 2017 to enhance the exchange of information and ideas. Collaboration to apply KTRS in the European context is in progress.