In this week’s column, Kehlan Kirwan has a special interview with Philip Cox from Silicon Valley Bank (SVB). Last week, SVB announced a further $100m investment into Ireland. Philip explains why they decided to invest again in Ireland and what they are looking for in companies.
What does SVB do?
The bank has been established for about 35 years now and was first put together in Silicon Valley when we started to get the emergence of technology and fast-growing companies in the valley.
It’s now listed on the Nasdaq and covers most major parts of the US. We are at the centre of the venture capital industry on the east and west coasts and in recent years we have expanded into the key innovation eco-systems around the world. So we’re in the UK, Israel, parts of Asia and also building a presence in Dublin given the emergence of that type of eco-system there. We’ve deployed $100m into Ireland already, but this is a new $100m round to bring the total up to $200m.
That’s because we’re finding a propensity of, what I would describe as, growth stage companies building new business models or using technology, software or products to create new ways of looking at industries that we have known traditionally.
Right across the segments of financial services, e-commerce, and telecoms, you find these new businesses that are changing the game of how we consume as individuals and how businesses interact with one another.
Are you a bank in the traditional sense?
Yes, we are a bank funded by our depositors, we do day-to-day commercial banking, payments, and foreign exchanges as well as lending.
The difference is we just specialise in technology and innovation companies crossing into med-tech as well. We don’t do a broad spectrum of businesses like your traditional high street bank would do and lend to all types.
That market is already there and that’s not the market we are targeting. We are very much targeted at a specific sector within the business sector in Ireland.
We are more likely to be working with the newer, more disruptive companies and technologies.
We’ve talked a lot in Ireland about ‘high street’ banks and their appetite for risk. Does SVB embrace risk more than an average bank?
We often refer to this as real risk or perceived risk. I think a high street bank looking at some of the things that we do, they would believe that it is riskier than what they lend out to small businesses; where they are taking personal guarantees from directors to put the loan through.
We don’t usually take personal guarantees because we’re looking at the business as a whole and if we can’t justify lending to the business then we would not provide the loan. We would say that the expertise that an organisation like ours has would be better than that within a high street bank. We understand the sub-sectors and niche areas of different markets.
That gives us an expertise in knowing whether or not a business has a really strong prospect for growth and success versus others that may not. For banks, that kind of expertise is really difficult to find. We may well see that landscape change in the way that banks are looking at the innovation space because it is thriving.
If you take a step back and look at it, you have to say to yourself that there will be more innovation in the future, not less of it. There is more of this to come.
Is there any pattern to those applications that do get accepted for capital?
We look for the creation of enterprise value. So, what does that mean?
Well, we’re looking for an understanding of the management teams’ game plan and the market they are looking to disrupt. How are things going to change and what technologies are enabling that change?
For example, location-based services on your mobile phone have enabled companies like Uber to be established because phones have allowed that connection to happen based on demand. So, away comes a new business model.
We look at how enterprise value will be created over time. It’s a specialist game, of course, and that’s why we have such a good global brand reputation, because we’re very specialised in what we do.
It’s harder for high street banks to do what we do because they don’t have the specialism and the deep roots in California where these industries are really centred on.
Are there differences between you and, say, a VC firm?
I think in some respects we’re actually looking for similar things. We’re looking for competent and capable management teams.
We’re looking for the products or services that are going to make big changes that will influence big industries and, therefore, make companies that can scale over time and across borders.
Those are the really interesting ones from an investment and lending point of view. Those are the ones that will grow fast, employ a lot of people and it’s important for places like Dublin to have as much of an established eco-system as possible.
If you don’t have that eco-system there then companies will migrate away from that local market and get what they need from California or some other more established eco-system.
If they can’t develop their businesses in a certain place they will look somewhere else to do it.
So why Ireland, what do you see that was worth lending out another €100m?
We started off the first tranche of money by flying in people from London and now we have a man on the ground, as it were, establishing an office here. I think Ireland ticks a lot of boxes that London, Berlin or Tel Aviv tick.
Those ingredients of an eco-system, so you have investors and capable management teams who have come out of larger corporates and are repeat entrepreneurs. You have access to early-stage equity funding through angel programmes and accelerator programmes.
You have an entrepreneurial spirit within the business sector in the country too.
Ireland also benefits from links in general with the US from history. The healthcare linkages to Boston and the technology bridge between Dublin and California are really strengthening.
You can now fly direct from Dublin to San Francisco and those things all help Ireland to be an attractive prospect.
What is the plan then for SVB in Ireland?
We’re establishing an office on the ground in Ireland this year and maintaining more of a presence.
As we continue to build a portfolio of clients the things that we do to support them from London can now be shifted into the local market.
There is a great community in the Dublin technology scene and in the wider areas of Ireland too. Companies of all stages, from early stage start-ups right through to larger corporates, can apply to us.
The bank is now at that size where we can be relevant to the bigger companies as well.
If you believe that you tick that innovation box, then definitely those companies should come and talk to us. We’d be delighted to be working with them on lending and help to connect them with the broader industry as well.
It’s important to be part of that fabric and be on the ground, and the reaction to us has been tremendous, the government has been extremely supportive.
Certainly on our strategic road map of Europe, Ireland is one of the important centres and somewhere that we want to continue to invest in.
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