“We increases our clients possibility of success”
“It’s the close relations to venture capitalists and the ability to have very frank discussions, that makes the difference. We have a great deal of interaction with venture capitalists,” Greg Becker, Chief Operating Officer of Silicon Valley Bank said, presenting startup banking in the innovation ecosystem.
Silicon Valley Bank focuses on banking services for technology startup companies. It takes on risks that other banks avoid, by lending to entrepreneurs and companies that are not profitable and might not be for some time.
“Technology-related companies are investing for a fairly long period, losing money and requiring a lot of capital,” said Greg Becker. “Traditional Banks lend money based on cash flow, but start-up companies mostly don’t even have a cash flow. Instead we offer loans based on the pedigrees and connections of the founders of a company. We facilitate businesses. Traditional banks evaluate businesses.”
For startups Silicon Valley Bank has a wide variety of financial options beyond a typical business loan. They finance equipment, do working capital loans, and loans based on intellectual property. It issues asset-based lines of credit or receivable-based lines of credit, with little regard to financial condition.
“We work with a significant number of companies that are pre-profit or in some cases pre-revenue. We tailor our product so we can offer them more value than other banks,” Greg Becker said.
Silicon Valley Bank has built up a unique knowledge of how the innovation ecosystem works.
“The terms are based on the quality of the prospects. For companies under pressure, the loans are tied to assets so that our exposure isn’t as bad in case the company goes bust. A good prospect get fewer restrictions on funding, while the others have to meet certain financial milestones.”
By lending to venture-funded startups, Silicon Valley Bank makes their venture capital money last longer. The companies gets a longer startup period and don’t have to return to the VCs as often, and give up more equity. That means the founders of the company wind up owning more of their own business at the outset.
“We play an intermediary role,” he says. “It’s like we’re coming in at the same time as the VCs, but we are a lender.”
Since the financial instruments are often backed by some kind of asset, the bank isn’t as exposed to risks as venture capitalists are. It doesn’t have to be as concerned about picking only winners.
Silicon Valley Bank is 25 years this year. It has 1,100 employees with three overseas branches: London, Bangalore and Shanghai. Over the last 23 years, it has worked with more than 30,000 companies. It played an important role in lending money in the early years to what are now big tech firms like Cisco and Electronic Arts. The bank has 11,000 clients and 50 percent of all venture-backed companies in the U.S. are clients. Through its venture arms, the company has limited partnership interests in more than 250 venture funds, and 515 venture firms are among its clients.