While Wall Street banks scramble to stake claims in the booming technology industry, they are finding a smaller one already firmly entrenched.
Silicon Valley Bank has maintained a dominant position among start-ups and venture capitalists in one of the most promising and lucrative corners of the United States economy. By the bank’s count, it serves 65 percent of all existing start-ups and many of the most prominent venture capital firms.
The bank, which is based in a sprawling campus in the heart of Silicon Valley, used to let its start-up clients “graduate” to larger banks as they grew. Now, though, Silicon Valley Bank is making every effort to expand its offerings to hold on to hot technology companies like Fitbit and Square.
Silicon Valley Bank’s strategy has brought it into increasing competition with the large banks that want a piece of the technology industry. Though Silicon Valley Bank is relatively small — it has a $40 billion balance sheet, compared to $850 billion for Goldman Sachs — many analysts say they think the bank will maintain its competitive edge.
“They have the relationships and they understand how to work them,” said Aaron James Deer, an analyst at Sandler O’Neill.
The relationships have already been evident in Silicon Valley Bank’s growth over the last few years. Many banks have been suffering through a period of stagnant or low growth, but the loan portfolio at Silicon Valley Bank increased by about 25 percent each of the last three years, and jumped 30 percent in 2014.
The bank’s singular exposure to technology leaves it vulnerable if the industry’s explosive growth turns out to be a bubble, as some have warned. The company’s stock fell more than 50 percent after the tech bubble burst in 2001.
But there is enough confidence in the continued success of the technology industry that Silicon Valley Bank’s share price has more than doubled from its high before the 2008 financial crisis and is up 85 percent over the last two years. Even with that growth, 13 of 18 analysts surveyed by Bloomberg have a buy rating on the stock.
Silicon Valley Bank opened in 1982 as a basic bank for start-ups, and new companies are still at the core of the business model. Start-ups are tough clients for banks because most of them have no revenue at the beginning and do not look like attractive candidates for loans — the basic business of banking.
Silicon Valley Bank has developed a specialty in gauging the creditworthiness of its clients by talking with the venture capitalists who are financing them and carefully monitoring spending.
“We are building relationships that may not pan out for 24 months or even longer,” said the bank’s chief executive, Greg Becker.
Meyer Malka, the founder of the technology investing firm Ribbit Capital, said that when he opened Ribbit in 2012, there was no question that he would use Silicon Valley Bank, because of its industry expertise.
“You can go to a big bank, but you have to teach them how you are doing your investment,” Mr. Malka said. At Silicon Valley Bank, he said, “these guys breathe, eat and drink this Kool-Aid every day.”
For Mr. Malka and the entrepreneurs he invests in, Mr. Becker’s bank is also attractive because it is more rooted in the local culture of the industry — jeans and all.
“It’s a very different vibe out here than it is in New York,” Mr. Deer said. “If you are a laid-back tech guy, you might be a little ruffled by the hard-charging New Yorker.”
The contrast is visible even in the bank’s cluster of cream-colored two-story office buildings in Santa Clara, Calif., a far cry from the bold skyscrapers where many other banks have their headquarters.
All the big banks are building their own offices in Silicon Valley, and stories abound about the Wall Street types flying out and trying to impress the entrepreneurs with freshly bought hoodies and denim jeans — sometimes with the tags still on.
For now, Silicon Valley Bank is not trying to compete with Wall Street on some of the most lucrative investment banking work: helping companies sell stock or bonds. Silicon Valley Bank tried to break into investment banking just as the first tech bubble burst and ended up closing the operation in 2006 after years of lackluster results.
Mr. Becker said that his bank did not have immediate plans to return to investment banking, though he said that if it did, the bank was likely to do it on its own rather than acquire an existing investment bank.
In the meantime, Silicon Valley Bank has been building the services it can provide to companies as they grow. It has created, essentially from the ground up, a team that can help companies issue large loans that are then sold in pieces — or syndicated — to other institutional investors. The syndicated lending division is led by Susan Winter, who previously worked at Barclays and JPMorgan Chase.
Silicon Valley Bank has also been expanding the desks where it trades foreign currencies and other financial assets, in large part to serve companies with foreign operations. The bank itself has been expanding its office in London for European start-ups and struck a deal with a bank in Shanghai to finance Chinese entrepreneurs.
In a less visible move, Silicon Valley Bank has also shown a willingness to work with start-ups that might scare off other banks. It has, for instance, been essentially the only financial institution in the country willing to work with companies that focus on virtual currencies like Bitcoin.
Mr. Becker doesn’t expect this sort of move to pay off soon, but he hopes that it will one day.
“These individuals will want to stick with you — you were there when they needed you before they became rock stars,” he said.
Silicon Valley Bank has maintained a dominant position among start-ups and venture capitalists in one of […]