Direct equity investments flow both ways across the Pacific, and a couple of small U.S. banks are getting a piece of the inbound action.
In Santa Clara, Calif., Silicon Valley Bank, a $1.1 billion-asset boutique institution specializing in technology, has carved a niche for itself by offering debt financing to U.S. companies that get venture capital funds from Asia.
Silicon Valley and its only major competitor, Los Angeles-based General Bank, use the strong relationships they have forged with Asian venture firms to make lucrative loans to high-tech start-ups, piggy-backing on the Asian firms' due diligence to get U.S. depositors and high-margin loans.
It may sound a bit risky, but Silicon Valley officials insist it is not. "All of our Asian venture capital deals have gone very well," says Daniel Quon, a technology division vice president in the bank's Pacific Rim group. "We haven't lost a penny on them."
Adds John Dean, Silicon Valley's CEO: "There's risk in dealing with anyone. If you know your partners and understand the market, the risks go down."
By requiring Asian-financed companies to become customers before loans are made, Silicon Valley has added $65 million in low-cost deposits. The bank presently has more than $50 million in loans outstanding to U.S. companies with Asian backing, and another $50 million in loan commitments.
Since beginning its program about four years ago, Silicon Valley has made about 100 loans of $1 million to $5 million. The pricing reflects the risk: A typical rate on those loans is prime plus 3 percentage points, plus a loan fee of about 1%.
Such numbers, combined with a 2.5% average deposit cost, have helped fuel Silicon Valley's expanding net interest margin and aided its recovery from an early-1990s bout of real estate loans gone bad.
Today, Silicon Valley views itself as a technology bank with no geographic limits. Sixty-five percent of its customers are businesses served through bank offices in Massachusetts, Colorado, Texas, or on the West Coast.
Many of the companies with Asian venture capital behind them also have Asian parents or managers. Such firms are notorious for insider deals and a closed approach to business; getting reliable information on them can be tough.
As a result, Silicon Valley's competition is sparse. General Bank, a $1 billion-asset institution with strong ties to Taiwan, began making loans to Asian-backed start-ups in the United States in 1994, and is the only other major player.
General Bank's Asia thrust is headed up by vice president Walter Lee, a former Silicon Valley Bank hand who came to the bank in 1994 and now works in its Cupertino, Calif., office.
While the idea of Asian venture capitalists making investments in the United States may sound a bit backward, Mr. Lee says it is becoming more popular.
"Asians look at investments differently," he says. "They are seeking strategic alliances and have a more global perspective than most Americans."
But Silicon Valley is regarded as the innovator. The bank got its start in the early 1990s when it began forging relationships with big venture capital firms in Singapore and Taiwan, including Vertex Asia Ltd., Transpac Capital Pte. Ltd., and the Singapore government-financed EDB Venture Pte. Ltd.
Those firms have excess money to invest and have put some of their funds in U.S. companies with Asian management or ownership. They know the players, and Silicon Valley knows them.
"It was a natural extension of our regular business," Mr. Dean says.
Many such loans take the form of bridge financing - money needed to keep things going between rounds of equity. The banks usually require equipment or proven sales before they lend and often seek guarantees or assurances of future investment from the venture capital firms.
Both Silicon Valley and General Bank also can be tempted by warrants, which Mr. Lee says "give us a boost on the back end of a deal if it is successful."