11/30/2023 0 Comments Svb venture debt![]() The unique business model of SVB required concentration. The loss of SVB therefore leaves a gap that cannot be filled by simply moving deposits to another US lender.įor startups this will be very painful. But its greatest value was to provide a pathway for Asian tech companies to obtain a US bank account and tap SVB’s network of US lawyers, investment bankers and accountants to secure an IPO. SVB went on to set up a local bank JV in Shanghai with Shanghai Pudong Development Bank, although most of its activities in Asia were incubating and managing a proprietary startup portfolio. These connections led to the establishment of leading partnerships, including Sequoia and Kleiner Perkins in China, and Accel in India. ![]() ![]() It booked flights for the most influential venture capitalists in the US to visit these emerging markets, and made introductions with local fledgling VCs and important startups. In 2004, SVB initiated trips to China and India. VC in fintech | Mark Munoz, Vectr | DigFin VOX Ep.EM fintech VC | Ganesh Rengaswamy, Quona | DigFin VOX Ep.VC, seeking tech gorillas, prepares for digital IPO.SVB was undeterred, although it realized that Japan, for all its technical prowess, was not the right destination for venture capital. ![]() It first attempted a tie-up with Aozora Bank, owned by SoftBank, but this didn’t work out. SVB, though, had a different perspective and could see the growing interest from Asia. The biggest firms in the US, such as Sequoia, Kleiner Perkins, and Accel, had no interest in Asia, or anything beyond an easy drive from their offices along Sand Hill Road. But Asia lacked a viable venture-capital industry. SVB’s international roleīy the early 2000s, the Asian tech scene, particularly in China, was taking off. For foreign companies, no other US bank was so enthusiastic about opening a deposit account for them. Its list of custody clients also includes many top names in Asian private equity. SVB also became the bank of choice for overseas VCs and startups that were positioning for an eventual IPO in New York. It invested in Napa wineries, which turned into a business expense, used to host industry events. It also became the personal bank of choice to entrepreneurs, providing them with mortgages and wealth management. It did make loans, such as bridge financings to startups that needed some expansion capital. SVB in turn made money by banking deposits, on which it could earn interest. If a startup looked like it would go under, the VC made darn sure that SVB was first in line to get repaid, lest it risk tainting its reputation – and that of all its other companies – with the bank. SVB protected itself – and wielded influence – by becoming critical to a VC’s entire suite of companies. It captured most of the market because it was willing to lend to both VCs and their portfolio companies. SVB got its start by inserting itself into VC deal flow. This is the case with blue-chip corporations, which are reliable borrowers, but not with startups. A bank makes money by accepting deposits and using those to lend. The other challenge to banking startups is that they don’t borrow much. This is why startups depend on venture capitalists providing equity. Startups are too risky and unknown for a regular commercial bank to accept them as a customer. ![]() The bank was founded in 1983 in San Jose, California to provide venture debt. But none like SVB, which evolved into a critical part of the financial landscape for global innovation. The startup and venture industry now has a different problem, because there is no substitute for SVB. In the case of SVB, it is also good because SVB’s customers are the primary incubators of innovation, both in the US and in Asia and Europe. The Federal Reserve did it to stop panics from affecting other US banks. On Sunday night in the US, federal authorities announced depositors would be made whole, so they can make payroll and continue to operate. Silicon Valley Bank, an institution critical to venture capital and startups, was wiped out in a panic on Friday, March 10. Question Time for startups and venture-capital firms who banked with Silicon Valley Bank: it’s Monday and the feds say you can withdraw your deposits in full. ![]()
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