Gaule: Thank you for taking part in the interview, and could you first give us an introduction to SVB and the contrast to normal high street business bank services.
Brady: SVB was founded in Santa Clara more than 31 years ago by a group of entrepreneurs who were frustrated themselves with working with the ‘high street’ banks at the time. It was not just about getting loans but getting attention, and 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 in the 31 years. We now have offices, firstly in Boston in the USA, and internationally, we visited China and Israel 15 years ago. Our first office outside the USA was in London 10 years ago, and we got our banking licence in London in 2012. SVB now also has a full banking licence in China.
Gaule: With your international perspective can you give us some insights to the market and technology in UK and Europe?
Brady: We were exceptionally lucky in terms of timing to be honest, as the process of getting a banking licence took a couple of years. So we were probably one of the very few banks that decided to double down in the financial crisis and continue our overseas expansion.
We got our licence in 2012. As you can imagine, at the time it was still a pretty dark time for banking. You might recall that 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, [and support from] entrepreneurs and the venture community. We did not do anything that got the other banks in trouble. We did not do M&A work, trading, research, consumer credit cards or mortgages, so we really are just focused on that commercial banking space in the life sciences, technology and energy sectors.
They were the sectors where government has been very supportive, plus they think the innovation economy is going to be important for job and wealth creation. Fast forward to today and we have around 700 clients in the UK and have made headway in a short time here.
Gaule: How do you see the businesses in Europe differentiated from those in Silicon Valley?
Brady: One of the differences is there is less capital available in Europe so the businesses tend to be more ‘scrappy’ and capital-efficient, getting further on less capital, so the challenge is, if they want to build a globally competitive business, they do need to consider going to the USA to attract capital. Having said that, corporate venture capital 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 VC market in Europe today. The role of corporates in Europe is more important as there is just less capital available today.
I also think the aspirations of the entrepreneurs have changed. I left in the early 2000’s to move to the USA and I now look at the entrepreneurs and see they are equally ambitious as their American counterparts and do not just want to build a small lifestyle company worth a few million [dollars] and stop. We are starting to see repeat entrepreneurs and truly great companies coming out of Europe.
Skype is obviously a great example, as are Skyscanner out of Scotland where Sequoia have invested, and Duedil in London; so we are starting to see billion dollar-type companies created.
Gaule: Do you think we will see an evening out of valuation multiples between USA 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 terms of the 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 more competition from VCs. As there is a dearth of capital there is still a valuation difference.
The shift which is important is there is a lot more seed and angel money coming in across Europe. For example, in London there are 40 plus incubators with active angel investors, and that is a huge shift, and emblematic for VCs. We are seeing more US-based VCs doing regular transactions and not just one-off deals every few years.
Gaule: What would be your key advice to a new corporate venturer entering this space?
Brady: [There are] probably three things to think about. Firstly, be really clear about what objectives you have got. Are you doing this for strategic rationale or 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 will can become non-strategic really quickly.
The 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 [the company has a corporate venturing arm] 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 [in terms of] 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, andf for your executives to meet the companies for mentoring, strategic advice, business connections and so on?
Gaule: I know you are in the process of moving from California to London at the moment so I am not sure you are getting much time to relax, but what do you do outside of Silicon Valley Bank?
Brady: I have an 11 year old son so being a dad is important. In the last five or so years I have been a soccer team coach, but I’m not sure that is relaxing. The other thing I do to relax and be healthy is run two or three times a week, typically five or six miles without music or distractions and be on my own.
– Photo of Gerald Brady courtesy of Silicon Valley Bank
To contact Andrew Gaule and for future interview ideas email andy@roscahill.com and tlewis@globalcorporateventuring.com
Global Corporate Venturing will be publishing an interview with Jonathan Norris, a managing director at SVB’s Capital, next week concerning trends in the healthcare sector.