Courtesy of Silicon Valley Bank
Back in 1982, Roger V. Smith had a vision: Build a commercial bank that collects deposits and provides products and expertise to ambitious technology and life science companies, VCs, private equity firms and entrepreneurs.
With next to no competitors at the time, Smith was able to expand the niche segment rapidly and become perhaps the world's most-recognized banking brand associated with innovative companies and their investors: Silicon Valley Bank.
Headquartered in Santa Clara, California, the bank boasts $60 billion of assets, $141 billion of deposits and investments, and loans of $29 billion. Within its segment, SVB is one of the largest banks in the US measured by assets and has offices in innovation hubs around its home market and the world. And that with a mere 3,250 employees. During the last 37 years, SVB has been riding the wave of unprecedented technological innovation and now counts around 50% of all VC-backed tech and life science companies in the US as clients. First-mover advantage It also, much sooner than any of its competitors, started to look beyond the US, driven by a conviction that both Israel and Europe were set on a similar growth trajectory. In 2008, it opened a representative office in Herzliya, a few years after it sent a small team to London to explore growth opportunities in the burgeoning UK technology space.
Courtesy of Silicon Valley Bank "We believed that the UK and the broader European ecosystem was going to turn into something really exciting," Erin Platts told PitchBook. Platts (pictured) has been with SVB for 15 years and was part of that small initial outpost in London. "Obviously, the period around the financial crisis was a really interesting time to move, and I thought this is going to turn into the shortest ex-pat assignment in the world," she added.
As the global financial community came to grips with subprime lending and an alphabet soup of structured products that led some of the largest financial services companies to the brink—and in some cases beyond—setting up a bank in one of the epicenters of the crisis was a bold move. "All of the banks that were serving what was still a small ecosystem back then were retracting. They were pulling term sheets, they were trying to take care of the massive problems some of them had, so for us the timing actually worked well," she recalled. Lean in In April, Platts was promoted from head of relationship banking in Europe to Head of EMEA and President of the UK Branch.
"Of course, I know the business really well, but at the same time I am stepping into a much broader role, so I have been spending my first few months meeting with the wider team and clients to get a sense of what is happening on the ground," she said.
At a time when many lenders are struggling to reach pre-crisis profitability levels and some are even announcing mass layoffs, SVB appears to have its foot firmly on the accelerator. Since the financial crisis, the bank has invested heavily and expanded its product suite, turning the relatively small specialist lender into a full-service commercial bank for innovative businesses and funds in the US.
And Platts has similar ambitions for the European arm.
"Essentially, it's all about growth," she noted. "That really means investing internally in terms of the team, resources and the technology needed to expedite onboarding of clients."
The bank's hunger for growth saw it open a branch in Frankfurt, Germany, in 2018, in a bid to tap into the growth of some of the country's homemade innovation success stories, such HelloFresh, Lilium and Cherry Ventures.
Platts' team is also eyeing opportunities in the Nordic region, which is likely to lead to boots on the ground before the end of the year. Despite its rapid growth, SVB has had a keen eye on keeping headcount in check, hiring very selectively.
"Talent acquisition is one of the top priorities for us, and I would expect us to bring in 40 to 50 people in Europe this year," Platts said. "We also focus on investing in and retaining existing talent and continue to look at growth opportunities." Europe is primed for growth The UK is still by far the most active hub in Europe when it comes to entrepreneurial activity and venture investing. However, Germany, France and even smaller countries such as Ireland are all seeing their own ecosystems evolve and mature. Last year saw an unprecedented amount of funding go into continental Europe with VCs investing
just shy of €12 billion across more than 2,800 deals, per the PitchBook Platform. Most of the capital went to Germany and France, which garnered roughly 25.3% and almost 24%, respectively.
Add to this the heightened activity in Israel, which, like Europe, has been on an upward trajectory
culminating in €2.4 billion being invested into startups last year, and you get a sense of why Platts is so bullish on Europe.
"There is no doubt that Europe is at an incredible inflection point, and I believe the best is yet to come," she said. “The foundations have been laid over the past few years, and now all of the ingredients are here. It's really unbelievable how the whole market and ecosystem has matured since our early days over here."
However, with continental Europe and Israel hot on the heels of the UK, there is an increased sense of insecurity stemming from the big known-unknown: Brexit.
Three years after the UK voted to leave the European Union, the agenda is driven by political infighting and outlandish remarks from both ends of the political spectrum around what a deal or no-deal Brexit means for the UK. The lack of concrete steps toward the UK's exit has led some investors to hold off deploying capital in the country, while some European businesses have, for now at least, shelved plans to enter the UK market. This is something Platts has observed firsthand.
"People in Asia, the US, and indeed Europe and the UK are looking for clarity. The uncertainty and level of ambiguity around Brexit is just not conducive to growth," she explained. Launch, grow, exit—repeat While having innovative businesses to back and the money to do it with are vital, those are not necessarily the main drivers of a maturing venture ecosystem. What is really required are individuals who have been through the lifecycle ideally several times before. With a number of exits under their belt, they are able to provide expertise and, in some cases, capital. This is an area where Europe is still lagging behind the US.
"The biggest difference we still have here—and it's really exciting to see that gap narrow—is just the sheer number of people who have been there and done that; that repeat entrepreneur," explained Platts. It's not unusual for some of her US-based colleagues to deal with founders who have been through the lifecycle as many as eight times, whereas in Europe, simply due to the relative youth of the market, it's hard to find an entrepreneur who has more than three exits to his or her name.
Platts conceded that there is a wide spectrum when comparing the sophistication of European founders with those across the Atlantic, but she noted, "The gap is narrowing by the month. The UK is by and large further than most other European countries, and Israel is also developing very nicely. All of this is to be expected—it's just a younger market." Hot verticals There is, of course, no shortage of sectors to focus on across SVB's favored geographies. However, when asked what she and her team are currently looking at and what verticals offer growth potential in the future, Platts offered a more nuanced view than naming the usual suspects such as fintech, medtech or mobility-related businesses.
"If you think about where we are in the cycle, the increase in regulation and client expectations, combined with the fact that some sort of correction is looming, you can bet that every single bank and financial institution will be investing in regulatory requirements both from an internal and client experience perspective," she said. "So I think we'll see a lot more activity in the regtech space."
Another vertical Platts believes is primed for growth is digital health, along with insurtech, which she said is not receiving a lot of column space and the attention it deserves: "Interestingly, we have not really seen a lot of scale yet. Right now, there is a lot of really interesting early-stage deals, but much more is bound to happen in this space."
For SVB, it appears, there is no shortage of opportunities in the UK, Israel and wider Europe. Indeed, the bank has built on the original vision of its founder and did not shy away from risk when moving outside of its US-focused comfort zone. But, as Platts explained, much more is yet to come.
"If we position ourselves as an extension of our clients, become true partners with a value-add intention, the banking and everything will follow," she said. "Being at this inflection point and seeing how rapidly things are evolving in Europe is exciting, but also rewarding since there is a sense of our early investments paying off."
Silicon Valley Bank co-sponsors the quarterly PitchBook-NVCA Venture Monitor.
Featured image courtesy of Silicon Valley Bank