Silicon Valley Bank has entered the beauty pageant business.
The Santa Clara, Calif., technology lending specialist is putting on showcases in which it parades start-up tech firms before angel investors, the winning models crowned with their first venture capital.
The $5.6 billion-asset bank hopes the events will initially give the budding companies exposure and ultimately help them become large enough to qualify as borrowers. But in the meantime, it is gaining deposits showcase winners are putting their seed money into Silicon Valley accounts.
The idea to do a pitch event is unique for a bank, said Mark Horn, senior vice president and manager of the banks three-year-old emerging-technologies division. We already give very early start-ups one-on-one introductions to investors, but we decided to put on the showcases to give them a greater opportunity to attract funding.
Four of the 31 companies participating in the first pageant, held in September at a convention center, later received funding of $500,000 to $1.5 million, Mr. Horn said. At the second, held last month at a hotel meeting room, 21 strutted their stuff, and Mr. Horn expects that several will get funding in the next couple of months.
Silicon Valley plans to stage its third showcase in April or May, and if the yearlong pilot program is successful it is to be expanded to emerging-technologies division offices in San Diego and Boston. Mr. Horn also pictures similar events for technology companies further along in their development and ready to compete for higher levels of venture capital.
As the companies get bigger, there are other things we can help them with, he said, such as offering working capital or equipment financing, factoring products, or fee-based investment banking services through the banks SVB Securities Inc. division.
Silicon Valleys other offerings for these companies include eSource, a service on its Web site that advises on everything from accounting to employee benefits to office furniture.
Very small companies may have great technology, but they dont have a lot of experience in business, Mr. Horn said. We can step in and work with the companies to help them maximize their company structure and their management team.
While most banks steer clear of start-ups that have little collateral, he said, some firms and their founders are too promising to ignore. Youve got to treat these people as if they are gold, because any one of them may be the next Cisco a couple of years from now.
Since the creation of emerging-technologies division, Silicon Valley Banks loan portfolio has increased 42%, to $1.7 billion at yearend 2000, and interest income overall has risen 133% in the three years, to $386.8 million.
Moreover, noninterest income has risen from $7.7 million to $189.6 million, mainly from the sale of warrants gleaned from technology borrowers. Its net income overall rose from $27.7 million, or $2.72 a share, in December 1997 to a record $159.1 million, or $3.23 a share, at yearend 2000.
Thanks in part to the start-ups seed money, Silicon Valley Banks deposits have risen to $4.9 billion at yearend 2000, against $2.4 billion three years earlier and up 18.3% from yearend 1999. That helped it achieve a 7.1% net interest margin for the year.
R. Jay Tejera, senior vice president at Ragen MacKenzie in Seattle, said Silicon Valley is really a deposit-driven company, with a relatively low loan to deposit ratio. Deposits, he added, are really valuable banks can make money on both sides of the yield curve.
Silicon Valleys deposit growth was only 2% from the third quarter to the fourth, mainly, Mr. Tejera said, because venture capital tightened. But he stressed that the well has not run dry.
Were seeing the front end of a slower venture capital environment after a white-hot period in 1998 and 1999, but venture capital is not going to go away, he said. It may be a little bit more cyclical than most capital formation tools, but Silicon Valley Bank is very well positioned, and the emerging-technology sector is still a growth category.