Sasin Research Seminar - Role of Startup Rating Agencies in Improving Venture Investment Decisions

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Role of Startup Rating Agencies in Improving Venture Investment Decisions

By: Thunyarat Amornpetchkul, Ph.D. Associate Teaching Professor of Information Systems & Analytics (ISA), Leavey School of Business at Santa Clara University Date: Wednesday, July 8, 2026 Time: 12.00-13.00 (Bangkok Time) Venue: Room 201 at Sasin School of Management or online via Zoom Register here to reserve your seat Abstract: The startup ecosystem is characterized by high uncertainty, severe information asymmetry, and increasing competition for scarce venture capital. Startup rating agencies (SRAs) have emerged to address these challenges by providing independent evaluations of new ventures, typically compensated through fixed fees or equity stakes. This paper develops a formal model of the investor’s decision whether to obtain an SRA rating under these two payment schemes. We identify the conditions under which ratings improve investment outcomes and compare the relative attractiveness of fixed versus equity fee arrangements. The analysis reveals that ratings are most valuable when public information is not decisively conclusive, with small equity investors benefiting more under favorable signals and large equity investors gaining under unfavorable signals. When comparing schemes, investors with larger stakes prefer fixed fees, while those with smaller stakes may benefit from equity-based fees. The preference for fixed fees is stronger when public information initially advises against investing. These results provide actionable insights for investors seeking to optimize due diligence strategies and for SRAs in designing compensation models that align with investor needs.   For more information please contact +66-2218-4000 ext. 84095 or [email protected].