Gaule: Introduce us to Silicon Valley bank (SVB) and its contrast to normal high-street business bank services.
Brady: SVB was founded in Santa Clara over 31 years ago by a group of entrepreneurs who were frustrated with working with the high-street banks at the time. It was not just about getting loans but getting attention and even to put deposits into the banks as start ups and early-stage entrepreneurs. They did an entrepreneurial thing in building a bank aimed at the technology community and we have grown, with offices first in Boston in the US and internationally visiting China, and Israel 15 years ago. Our first office outside the US was in London 10 years ago and getting our bank licence in London in 2012. SVB now also has a full bank licence in China.
Gaule: With your international perspective, give some insights into the market and technology in the UK and europe.
Brady: We were exceptionally lucky in terms of timing, as the process of getting a banking licence took a couple of years. We were probably one of the very few banks that decided to double down in the financial crisis and continue our overseas expansion. The process took a couple of years and we got our licence in 2012. It was still a pretty dark time for banking. A number of banks had to be bailed out by government, and there was a strong feeling across all political parties that banks had stopped lending to early-stage businesses and that credit had really dried up across all industry sectors. We were very fortunate to be welcomed into the UK with cross-party support, entrepreneurs and the venture community. We did not do anything that got the other banks in trouble – merger and acquisition work, trading, research, consumer credit card, mortgages – so we really just focused in that commercial banking space in life sciences, technology and energy sectors. They were the sectors where government has been very supportive, plus they thought the innovation economy is going to important in job and wealth creation. We now have around 700 clients in the UK, about a billion in loans and making headway in a short time here.
Gaule: How do you see the businesses in Europe differentiated from those in Silicon Valley?
Brady: One difference is there is less capital available in Europe so businesses tend to be more scrappy and more capital-efficient, getting further on less capital. So the challenge is if we want to build globally competitive businesses they do need to consider going to the US to attract capital. Having said that, corporate venturing has become a more significant factor, and depending on which report you read, corporates are between 20% and 40% of the funds coming into the venture capital market in Europe today. The role of corporates in Europe is more important as there is just less capital available. I also think the aspirations of the entrepreneurs has changed. I left early the in 2000s to move to the US and I now look at the entrepreneurs and I see they are as ambitious as their American counterparts and they do not just want to build a small lifestyle company of a few million and stop. We are starting to see repeat entrepreneurs and truly great companies coming out of Europe. Skype is obviously a great example, also Skyscanner out of Scotland where Sequoia has invested, Duedil in London, so we are starting to see billion-dollar-type companies created.
Gaule: Do you think we will see a levelling of valuation multiples between US and europe?
Brady: I still think there is an arbitrage opportunity. There is, however, a cost advantage to London and Europe, with the cost of engineers being lower than in Silicon Valley. London in cost of living is not likely to be cheaper, but salaries are absolutely cheaper. Valuations are still lower in Europe and we will not see that change until we see more venture capital coming into the market and seeing more competition from venture capitalists (VCs). As there is a dearth of capital there is still a valuation difference. The important shift is that there is a lot more seed and angel money coming across Europe. For example, in London there are 40-plus incubators with active angel investors and that is a huge, huge shift and emblematic, and a good sign for VCs. We are seeing more US VCs doing regular transactions and not just one-off deals every few years.
Brady: First, be really clear about what objectives you have got. Are you doing this for strategic rationale, are you doing it to make money? If you are doing it for strategic reasons then you need to keep in mind if you do not make money you can become non-strategic really quickly. Second is in terms of executive sponsorship and where the sponsorship lies. If the CEO has not bought in, you need to ensure that through the course of your tenure they need to understand why, and the value it brings to the business above the dollars deployed. Because if you are a large multinational you are just not going to move the needle on your own so you have to add strategic value to the organisation. Strategic insights can have a massive impact from what you see in the market, and connecting the dots so you do not miss a trick. The final observation I would make is for the entrepreneurs you engage with: can the corporate add real value back to the business? Are you geared up to do an early trial, for your executives to meet the companies for mentoring, strategic advice, business connections and so on?