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A new model of venture debt rating

Sotirelis Pantelis

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Year 2019
Type of Item Master Thesis
Bibliographic Citation Pantelis Sotirelis, "A new model of venture debt rating", Master Thesis, School of Production Engineering and Management, School of Electrical and Computer Engineering, Technical University of Crete, Chania, Greece, 2019
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Startups and early stage firms don’t fulfill traditional lending criteria, which affects their access to credit. To mitigate this problem, the present thesis defines a credit rating framework (CRF) for early stage firms and proposes a basic CRF model. The CRF utilizes indicators in respect to venture lending criteria, credit risk modeling, VCs’ quality and firms’ performance, concluding to the basic model. The proposed CRF model includes and consolidates 6 models provided by the literature, related with firm’s failure risk. Moreover, it allows the inclusion of additional models without losing its generality and consistency. Specifically, the basic CRF normalizes each model estimator on a relative scale of 5, benchmarked against firms with established credit ratings and provides an overall rating presented on a radar graph. The model leverages the rating scales of known rating agencies for the credit risk assessment of early stage firms. Generally, the proposed CRF tries to reduce the information asymmetry between lenders and early stage firms, aiming to improve the access of the latter to debt financing.

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