🇮🇷A New Multi-Dimensional Framework for Start-Ups Lifespan Assessment Using Bayesian Networks​

Mohammad Reza Valaei & Vahid Khodakarami, Ph.D., Bu-Ali-Sina University, Iran

Presented at the 2023 BayesiaLab Spring Conference.

Abstract

Assessing risk for a start-up is always a complex and challenging task, as historical data is typically unavailable. Traditional methods are inadequate in capturing the full complexity, so more sophisticated tools are required. This paper presents a method for estimating the default rate at various stages of a start-up's life cycle using an expert-elicited Bayesian Networks (BNs) methodology. A prototype BN model is proposed to combine diverse sources of information, including historical data and expert knowledge. The model has a hierarchical structure to capture start-ups' known risk factors. It also uses the Noisy-OR operator to capture the unknown risks in each of the main categories.

The prototype model can be adjusted to capture the unique characteristics of each start-up and investor. 3 case studies were used to demonstrate the applicability of the model. The proposed method reduces the cognitive error of experts, takes advantage of the learning feature of BNs when updating default estimations, and takes into account the impact of investors' risk appetite. It also allows for ranking the most effective risk factors at various stages of the start-up life cycle.

Presentation Video

About the Presenters

Mohammad Reza Valaei, Bu-Ali-Sina University, Hamedan, Iran

Mohammad Reza Valaei is a Ph.D. candidate in Industrial Engineering at Bu-Ali-Sina University. His research interests include practical studies in financial risk management, start-up valuation, venture capital, and portfolio optimization.

Vahid Khodakarami, Ph.D., Bu-Ali-Sina University, Hamedan, Iran

Vahid Khodakarami is an associate professor at Industrial Engineering Department at Bu-Ali-Sina University. During his Ph.D. study at Queen Mary University of London in 2004, he was introduced to the Bayesian Networks technology. Since then, applying BN in real-life projects has become his main research interest. He has published several papers. Risk Assessment, Reliability, Sustainability Engineering, and Project Management are among Vahid's other research interests.