Financing the Technology Innovation of SMEs in Korea i SME K H - - PowerPoint PPT Presentation

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Financing the Technology Innovation of SMEs in Korea i SME K H - - PowerPoint PPT Presentation

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Financing the Technology Innovation of SMEs in Korea i SME K H Hong Jae-Keun (Ph.D) J K (Ph D) CONTENTS . Why SME Technology Financing Matters? . Why SME Technology Financing Matters? . How Korean SMEs Finance for

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『Financing the Technology Innovation of SME i K

H J K (Ph D)

SMEs in Korea 』

Hong Jae-Keun (Ph.D)

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CONTENTS Ⅰ. Why SME Technology Financing Matters? Ⅰ. Why SME Technology Financing Matters? Ⅱ. How Korean SMEs Finance for R&D? Ⅱ. How Korean SMEs Finance for R&D? Ⅲ. Sophisticated Technology Financing Infrastructure Ⅲ. Sophisticated Technology Financing Infrastructure Ⅳ. Less Accessibility & Availability of the Infrastructure Ⅳ. Less Accessibility & Availability of the Infrastructure Ⅴ. Conclusion and Suggestions Ⅴ. Conclusion and Suggestions

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  • I. Why SME Technology
  • I. Why SME Technology

Financing Matters? g

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Why SME Technology Financing is important?

Ⅰ. Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s?

More balanced and sustainable growth is needed

  • A strong and innovative SME sector is the key for the balanced and

sustainable growth

  • From factor-input to innovation led economy development paradigm

Innovation-led competitive paradigm for SMEs prevails Due to the information asymmetry of SMEs’ technology innovation Market failure is needed to be fixed

  • Due to the information asymmetry of SMEs’ technology innovation,

bridging the gap between financial market and intangible future asset is getting important

  • The social rate of return of technology financing exceeds the private

A ripple effect on the national economy

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The social rate of return of technology financing exceeds the private rate of return

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Ⅰ. Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s?

European paradox? Now, Korean paradox in SME R&D

The success rate of government-granted R&D project exceeds 90%, but the rate of commercialization of the R&D output lies at about 40%

  • Small and Medium Business Administration-

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Further evidences of Korean paradox in SME R&D

Ⅰ. Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s?

80%↓

  • 75.8%

74.6% 74.7% 74.9%

2005 2007 2009 2011

  • [unit : million won]

15,064

2005 2007 2009 2011

[unit : %, LEs = 100] [unit : million won]

9,803 10,464 12,244 12,904

26.6 28.1 26.58 30.7 32.4 28.8 sales added value

「

  • 」
  • 2007

2009 2009 2010 2011 2008 2009 2010

  • 30.6%

70.0% 69.3% 54.1%

6

  • KOREA

UK USA JAPAN

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Financing gap results in the paradox

Ⅰ. Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s?

Hurdles against The most required policy for Hurdles against R&D commercialization of SMEs

Lack of funds

The most required policy for R&D commercialization of SMEs

Technology appraisal based financial support High price of product Difficulty in sourcing Preferential public procurement

  • f new technology product

Consulting support as market analysis Emergence of similar product Immature market

The most necessary policy for the R&D commercialization of SME

Human resource support for production Human resource support for marketing S t f hibiti Incomplete product Others Support for exhibition and overseas exploitation Support for domestic and global standardization Others

7 Source: Survey on SME technology and R&D 2011 (SMBA).

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『Technology Financing』to bridge the financing gap Ⅰ. Wh

. Why SME T y SME Technology nology Financing Financing Matt Matter ers? s?

In a broad sense, ‘Technology Financing’ is a high risk enterprise financing, that covers life-cycle of‘start-up’,‘R&D’,‘R&D output commercialization’ by means of technology appraisal In a narrow sense, ‘Technology Financing’means loan or investment executed after the opinion of technology appraisal institution, not depending on the collateral collateral

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The Paradigm shift in SME policy also influenced on the emergence of Technology Financing

Ⅰ. Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s?

influenced on the emergence of Technology Financing

Before currency crisis After currency crisis

  • Protection & Growth
  • Protection & Growth
  • Competitiveness
  • Competitiveness

The Paradigm Shift The Paradigm Shift Requires Change in Business Strategy of SMEs

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New business strategy requires a new financial instrument Ⅰ. Wh

. Why SME T y SME Technology nology Financing Financing Matt Matter ers? s?

C t T h l l d Business Strategy SME Technology Strategy Cost

  • r

Differentiation Technology leader

  • r

Fast Technology follower Technology Financing Traditional SME Financing

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g

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  • II. How Korean SMEs Finance
  • II. How Korean SMEs Finance

for R&D?

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High R&D intensity of Korean SMEs

Ⅱ. Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D?

<R&D Intensity of Top 1,000 R&D Enterprises by Firm Size>

(unit: %) 4.62 4.84 4 06 5.00 6.00 2.50 2.51 2.77 4.06 3.00 4.00 1.00 2.00 0.00 1.00 2008 2009 2010

12 source: Korea Institute of Advanced Technology (2012).

LEs SMEs

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Government is a key source of external R&D financing

Ⅱ. Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D?

government loan 10%

  • thers

5% government loan, 1.8%

  • thers,

0.2%

[Manufacturing sector] [Business service sector]

5% private investment 12% private loan Government grant private investment, 3.8% Government grant, 6.8% external p a e oa 9% grant 64% External private loan, 1.7% external finance, 17.5% External finance, 14.2%

Internal finance, 82.5% Internal finance , 85.8%

13 Source: Survey on SME Technology & R&D 2011(SMBA)

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Small Portion of Technology Financing

Ⅱ. Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D? 2010 2011 2010 2011 Government direct loan 8,657 8,897 Technology guarantee * 151,181 151,914 Private finance 1,018 554 Venture capital 16,028 20,309 Total (a) 176,884 hundred million 181,674 hundred million Bank SME loan (b) 429.7 trillion 441.0 trillion a/b 4.09% 4.10%

*: public loan guarantee by technology appraisal

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Boosting the loan guarantee by technology appraisal

Ⅱ. Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D?

KOTEC has rearranged all the branches into technology appraisal centers KOTEC has rearranged all the branches into technology appraisal centers to guarantee the loan by KTRS(Kibo Technology Rating System) since 2008

[Portion of technology guarantee in outstanding guarantee of KOTEC]

54.0% 91.4% 93.4% 15.4% 15

2004 2007 2011

  • 2012. 10
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Evolution of technology financing: public loan guarantee

Ⅱ. Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D?

In respond to the global innovation trend of technology convergence Amount of guarantee approval is calculated in reference with the expected future cash flow of the patented technology future cash flow of the patented technology

  • Currently, expected sales in 1yr has been used to calculate the guarantee amount

Estimate the required fund during the life-cycle phase of R&D and set the maximum guarantee amount for the whole life cycle maximum guarantee amount for the whole life-cycle Provide the guarantee at each phase of life-cycle

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Provide the guarantee at each phase of life cycle

  • 100 billion in 12yr
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Evolution of technology financing: private sector

Ⅱ. Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D?

To redeem the collateral based underwriting practice and weak technology screening capability of private financial institutes

  • KOTEC and KIPA issue 『technology appraisal certificate』 to the innovative SMEs
  • The contracted banks approve loan in reference with the certificate

(loan approval rate of '11 : 93.8%)

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Evolution of technology financing: venture capital

Ⅱ. Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D?

[annual Investment amount]

(Unit: hundred million won) New investment Outstanding (Year)

18 Source: Korean Venture Capital Association (2013).

( )

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  • III. Sophisticated Technology
  • III. Sophisticated Technology

Financing Infrastructure g

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Kibo Technology Rating System

Ⅲ. Sophisticat

  • phisticated

ed Technolog nology Financing Financing Infras nfrastructure ructure

KTRS provides the grade of technology or the enterprise holding the technology through the appraisal of the technological level marketability profitability through the appraisal of the technological level, marketability, profitability, environmental condition

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System Models of KTRS

Ⅲ. Sophisticat

  • phisticated

ed Technolog nology Financing Financing Infras nfrastructure ructure

Level of technology

business

KTRS technology appraisal system

Business organizational capability

Technology Marketability Technology appraisal index (34) Future Marketability of Technology Risk in Commercialization

Matrix

Evaluation grade of

KTRS

Profitability Economic environmental factor Risk in Commercialization

Environmental risk Risk level Matrix

Technology Business

KTRS-Startup technology appraisal system

Technology Level of technology business Evaluation

KTRS

Future Marketability of Technology

C

appraisal index (23) Risk in Commercialization

Risk level Matrix

grade of Technology Business

KTRS Start-Up

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Brief performance of KTRS

Ⅲ. Sophisticat

  • phisticated

ed Technolog nology Financing Financing Infras nfrastructure ructure

60 8% f KTRS b fi i i Guarantee default rate: KTRS (133%)＜Financial model (214%) 60.8% of KTRS beneficiaries could have been rejected the guarantee approval

60 8% 1 33%

KTRS (1.33%) ＜Financial model (2.14%)

('05. 7 ~ '09. 5)

rejected the guarantee approval by the financial information based rating system

60.8% 1.33%

Several BM patents KTRS had been nominated as a candidate for the Edelman

Prize Patents

prize(06.12)

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Institutional infrastructure for technology financing

Ⅲ. Sophisticat

  • phisticated

ed Technolog nology Financing Financing Infras nfrastructure ructure

Government has appointed 9 institutes such as KOTEC, SBC as technology appraisal institutions and apprehensively supported the cultivation of technology appraisal manpower and linked various commercialization support technology appraisal manpower and linked various commercialization support process

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Link with other SME financing infrastructures

Ⅲ. Sophisticat

  • phisticated

ed Technolog nology Financing Financing Infras nfrastructure ructure

Technology appraisal certificate based loan is added into the regional Technology appraisal certificate based loan is added into the regional headquarters ceiling(C2) of aggregate credit ceiling loan(BOK) ('11.12) Performance of technology appraisal certificate based loan approval is taken Performance of technology appraisal certificate based loan approval is taken into account to allocate the on-lending fund to the banks ('11. 5)

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  • IV. Less accessibility &
  • IV. Less accessibility &

availability of the y Infrastructure

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Voice of stakeholders

Ⅳ. Less accessibility bility & & ava availability bility of t the Inf Infrastructure astructure

“Technology appraisal institutions estimate the value of the technology too conservatively” “Technology Financing is generally available only at the start-up stage, since collateral is still required during the whole commercialization process” “The unpredictable risk is so big that the technology appraisal result The unpredictable risk is so big that the technology appraisal result is not fully reliable without the loss sharing scheme”

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Deterioration of financial access of Korean enterprises

Ⅳ. Less accessibility bility & & ava availability bility of t the Inf Infrastructure astructure

  • Ranking
  • Source: The Global Competitiveness Report 2008-2013 (World Economic Forum)
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Unbalanced status in Korean SME finance

Ⅳ. Less accessibility bility & & ava availability bility of t the Inf Infrastructure astructure

According to the 『Financial Development Index 2012』 by WEF, Korea has been ranked at 15/62 in total. But, in regarding to the financial access of enterprises, Korea has been ranked at 58/62.

15/62 58/62

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SMEs use too small portion of equity finance

Ⅳ. Less accessibility bility & & ava availability bility of t the Inf Infrastructure astructure (Unit: %) (Unit %) '08yr '09yr '10yr '11yr All 100.0 100.0 100.0 100.0 LE 90.5 91.0 93.3 96.7 SME 9.5 9.0 6.7 3.3 Equity 100.0 100.0 100.0 100.0 Equity LE 43.6 60.9 69.9 86.1 SME 56.4 39.1 30.1 13.9 Corporate bond 100.0 100.0 100.0 100.0 LE 99.1 98.3 98.6 98.9 SME 0.9 1.7 1.4 1.1

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Source: Financial Supervisory Service.

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Reliability as a infrastructure is still far to go

Ⅳ. Less accessibility bility & & ava availability bility of t the Inf Infrastructure astructure

Though ‘standard technology appraisal model’ has been developed Though standard technology appraisal model has been developed by SMBA, KOTEC and KDB in 2005, the diffusion has been failed

  • Currently, each institute uses their own appraisal model

Positive response on the reliability of technology appraisal result (%) : (SMEs)48, (Bank)60, (VC)14

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Less reliability harms the availability of the infrastructure

Ⅳ. Less accessibility bility & & ava availability bility of t the Inf Infrastructure astructure

According to the audit result by the Board of Audit and Inspection in May 2012, all the 6 banks don't have any preferential regulation to the ‘certificate of technology appraisal’and most loans seems to have been approved not using the certificate.

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  • V. Conclusion and Suggestions
  • V. Conclusion and Suggestions

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Recommended Direction of Technology Financing

Ⅴ. . Conclusion nclusion and s d sugges estions tions

More More More Accessibility More Direct financing More Efficient Infrastructure Innovative Technology Of Enterprise Of Enterprise

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Technology Financing in Crowd funding

Ⅴ. . Conclusion nclusion and s d sugges estions tions

Small investment Creative idea investment Social participation Crowd funding

Crowd funding is a well-fitted financing technique for the creative ideas Creative Economy for the creative ideas

Crowd funding allows creative entrepreneurs easily access

y Direct Financing

But, in technology based project, an information asymmetry between investors and entrepreneurs shall hampers to the direct financing

Direct Financing Information Asymmetry

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between investors and entrepreneurs shall hampers the facilitation of crowd funding

Information Asymmetry

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Technology appraisal certificate to facilitate Crowd funding

Ⅴ. . Conclusion nclusion and s d sugges estions tions

  • Crowd funding model with Technology Appraisal Certificate

Project 1

  • Project 1

Project 2 Project 6 j Project 3 Project 5 Project 2 Project 4 Project 3

  • 「
  • 」」

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  • 「
  • 」」
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Technology Financing in KONEX

Ⅴ. . Conclusion nclusion and s d sugges estions tions

Globally, the success of SME specialized stock market is not easily attainable. For the success of KONEX*, the efficient and active knowledge channel inside the market is necessary. Especially, the information on the value of technology is very sticky and hard to get. Thus, in KONEX, the 『technology appraisal certificate』 could meet the knowledge demand of NOMAD** and Investors for the value of technology.

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* : Korea New Exchange for SMEs ** : Nominated Advisor

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Thank you Thank you