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Silicon Valley, Pudong lenders join forces to breed technology
By Hu Xiaocen |
September 10, 2012, Monday
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Print Edition
Print Edition
SILICON Valley Bank, a lender to the US technology sector, formed a joint venture bank with Shanghai Pudong Development Bank last month.
SPD Silicon Valley Bank is the first jointly owned bank involving a Chinese and a US commercial lender. It is also the first bank in China to focus on technology-oriented businesses.
Ken Wilcox, president and chief executive officer of the new bank, sat down for an interview with Shanghai Daily after the grand opening ceremonies for the new bank. Wilcox joined Silicon Valley Bank in 1990 and became president and CEO of the California-based lender 10 years later. After that, he served as chief executive of SVB Financial Group, parent of Silicon Valley Bank.
In 2005, he came to Shanghai to open the first representative office of Silicon Valley Bank in China.
Prior to his banking career, Wilcox was a professor of German at the University of North Carolina. He has a PhD in German studies from Ohio State University and a master's degree in business administration from Harvard Business School.
He is a member of the Federal Reserve Bank board for the San Francisco region and an adjunct professor at Fudan University in Shanghai.
In 2008, Wilcox was named "Banker of the Year" by the American Banker newspaper and "Entrepreneur of the Year" by Ernst & Young in 2009 and in 2010.
In the interview, Wilcox discussed the difficulties and rewards of financing technology development.
Q: What are the respective roles of Pudong Development Bank and Silicon Valley Bank in the new joint venture?
A: Think of SPDB and SVB as the parents of the new joint venture. SVB owns 50 percent, and SPDB owns 50 percent. So they are equal shareholders.
It makes sense to form a joint venture only if both parents have something useful to provide.
I'll first talk about Silicon Valley Bank.
SVB brings 30 years of experience in dealing with technology companies. You may know that SVB has a dominant market share among technology companies in the United States. In those 30 years, SVB has always earned money, with relatively few losses.
SVB brings a successful approach to client services and a different methodology in terms of underwriting loans to technology companies.
SVB has been physically present in China now for seven years. In that time, we have done very modern business in China with technology companies and venture capital firms.
Because we didn't have a banking license in China, the business we did was with offshore dollars. That is, dollars not yet in China, but principally in the Cayman Islands and elsewhere. We were able to grow a nice portfolio of 300 companies, half of them are technology companies and half of them are venture capital funds.
Now, of course, the new joint venture bank can work only with onshore dollars, at least for the time being. We cannot initially work with renminbi. I don't know how long that will last.
Some of the companies we already work with may wish to take some of their offshore dollars and convert them into onshore dollars. The new joint venture bank can handle those transactions.
Let's turn to Shanghai Pudong Development Bank. It provides very strong knowledge about the local market and about how the backroom of a Chinese bank operates in terms of information technology and other functions.
SPDB also provides a very strong relationship with both Chinese regulators and the government. And finally, SPDB brings a very strong and large balance sheet. The new joint venture bank is, of course, a small bank. Often it's helpful for a small bank to have a large bank supporting it because that gives customers more confidence.
Q: What are the differences between innovative financing in the US and China? What has made SVB so successful in funding technology companies?
A: In financing technology companies, Chinese and American banks are similar.
There are 8,000 banks in the US, but SVB never really has had any serious competitors. Most American banks would rather not finance technology companies because they are perceived to be risky. And if you don't understand technology companies, probably it is risky. The other thing is hard work. Banks have so many different industries seeking loans that if any of them is particularly hard work, it will just be avoided.
In some aspects, Chinese banks are similar. They have so many state-owned enterprises and real estate developers clamoring for loans. Just like American banks, they believe lending to technology companies is risky and requires a lot of hard work to understand the nature of the businesses.
Most technology companies are not large. So it is easier to lend to a large company than to many smaller ones.
At the same time, the Chinese government is very interested in developing innovation in financing and wants to promote the development of technology companies and small-to-medium businesses.
Q: How does SVB maintain profitability in lending to small technology companies?
A: There are three answers. First of all, making a lot of loans. Secondly, charging higher rates to reflect the higher risk. And third, banks that lend money to technology companies are allowed to ask for a tiny bit of equity. It's so small that it makes no difference to the entrepreneur, but it is big enough for the bank to cover any losses that may accrue.
In the US, Silicon Valley Bank makes most of its money from big companies, not smaller ones. However, its new business development is aimed at small companies. And it works very hard with those companies to help make them successful. While the companies are small, the bank doesn't make much profit from them.
But because the bank works with them so well and for so long, most of them are loyal. As a result, they stay with SVB when they become larger and more successful.
I would say working with technology companies is very labor-intensive.
SPD Silicon Valley Bank is the first jointly owned bank involving a Chinese and a US commercial lender. It is also the first bank in China to focus on technology-oriented businesses.
Ken Wilcox, president and chief executive officer of the new bank, sat down for an interview with Shanghai Daily after the grand opening ceremonies for the new bank. Wilcox joined Silicon Valley Bank in 1990 and became president and CEO of the California-based lender 10 years later. After that, he served as chief executive of SVB Financial Group, parent of Silicon Valley Bank.
In 2005, he came to Shanghai to open the first representative office of Silicon Valley Bank in China.
Prior to his banking career, Wilcox was a professor of German at the University of North Carolina. He has a PhD in German studies from Ohio State University and a master's degree in business administration from Harvard Business School.
He is a member of the Federal Reserve Bank board for the San Francisco region and an adjunct professor at Fudan University in Shanghai.
In 2008, Wilcox was named "Banker of the Year" by the American Banker newspaper and "Entrepreneur of the Year" by Ernst & Young in 2009 and in 2010.
In the interview, Wilcox discussed the difficulties and rewards of financing technology development.
Q: What are the respective roles of Pudong Development Bank and Silicon Valley Bank in the new joint venture?
A: Think of SPDB and SVB as the parents of the new joint venture. SVB owns 50 percent, and SPDB owns 50 percent. So they are equal shareholders.
It makes sense to form a joint venture only if both parents have something useful to provide.
I'll first talk about Silicon Valley Bank.
SVB brings 30 years of experience in dealing with technology companies. You may know that SVB has a dominant market share among technology companies in the United States. In those 30 years, SVB has always earned money, with relatively few losses.
SVB brings a successful approach to client services and a different methodology in terms of underwriting loans to technology companies.
SVB has been physically present in China now for seven years. In that time, we have done very modern business in China with technology companies and venture capital firms.
Because we didn't have a banking license in China, the business we did was with offshore dollars. That is, dollars not yet in China, but principally in the Cayman Islands and elsewhere. We were able to grow a nice portfolio of 300 companies, half of them are technology companies and half of them are venture capital funds.
Now, of course, the new joint venture bank can work only with onshore dollars, at least for the time being. We cannot initially work with renminbi. I don't know how long that will last.
Some of the companies we already work with may wish to take some of their offshore dollars and convert them into onshore dollars. The new joint venture bank can handle those transactions.
Let's turn to Shanghai Pudong Development Bank. It provides very strong knowledge about the local market and about how the backroom of a Chinese bank operates in terms of information technology and other functions.
SPDB also provides a very strong relationship with both Chinese regulators and the government. And finally, SPDB brings a very strong and large balance sheet. The new joint venture bank is, of course, a small bank. Often it's helpful for a small bank to have a large bank supporting it because that gives customers more confidence.
Q: What are the differences between innovative financing in the US and China? What has made SVB so successful in funding technology companies?
A: In financing technology companies, Chinese and American banks are similar.
There are 8,000 banks in the US, but SVB never really has had any serious competitors. Most American banks would rather not finance technology companies because they are perceived to be risky. And if you don't understand technology companies, probably it is risky. The other thing is hard work. Banks have so many different industries seeking loans that if any of them is particularly hard work, it will just be avoided.
In some aspects, Chinese banks are similar. They have so many state-owned enterprises and real estate developers clamoring for loans. Just like American banks, they believe lending to technology companies is risky and requires a lot of hard work to understand the nature of the businesses.
Most technology companies are not large. So it is easier to lend to a large company than to many smaller ones.
At the same time, the Chinese government is very interested in developing innovation in financing and wants to promote the development of technology companies and small-to-medium businesses.
Q: How does SVB maintain profitability in lending to small technology companies?
A: There are three answers. First of all, making a lot of loans. Secondly, charging higher rates to reflect the higher risk. And third, banks that lend money to technology companies are allowed to ask for a tiny bit of equity. It's so small that it makes no difference to the entrepreneur, but it is big enough for the bank to cover any losses that may accrue.
In the US, Silicon Valley Bank makes most of its money from big companies, not smaller ones. However, its new business development is aimed at small companies. And it works very hard with those companies to help make them successful. While the companies are small, the bank doesn't make much profit from them.
But because the bank works with them so well and for so long, most of them are loyal. As a result, they stay with SVB when they become larger and more successful.
I would say working with technology companies is very labor-intensive.
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