Name: Insights: How Silicon Valley Bank Decides Which Startups to Fund
Uploaded: 2020-01-15
Duration: 3 min 19 s
Description: A discussion of the risks involved funding startups and entrepreneurs. (June 2019)

[MUSIC PLAYING] How do you both assess a company before deciding to give it credit? What are the factors you use? Yeah, so there's several things, right? So one is you've got to look at how they've been capitalized, if at all, right? So they've raised some seed financing of some type. That helps. That's the part that when you don't have revenue and you truly are getting started, that's probably one of the only ways that you can assess. You do look at the team itself, but it starts with just kind of how they're capitalized at the beginning. Do you ask for revenue and you look at the people who have backed the company? Well, it may not be-- so this is pre-- Pre-revenue. Pre-revenue, and it could be pre-venture capital, right? So it could be, have they raised a seed round from somebody, right? It may or may not be venture capitalists. If it's a venture capitalist, that obviously helps. But if it's other ways to raise money in other ways, we'll take a look at that as well. So it starts out when we were talking about it, said, how much money has been raised before, that's what you mainly look at before there's any revenue. Once they start having revenue, you can start looking at metrics, and you can start to lend to those metrics. And that is really helpful. So we don't just look at capitalization. We clearly look-- we have great profits in there. That's a very important check the box, that hey, there's a great venture capitalist involved. But that's one piece of the puzzle, right? It's also important, as much of it is a important check that you're involved or other venture capitalists are involved, right? We look at other factors. And as you know, I mean, startups don't always work out. And there is no guarantee, right? The venture capitalists are guaranteeing the debt. Individuals also aren't guaranteeing the debt, so the principles of the firms. And so we do have to look at the business overall and what the prospects are for success. And so all that comes into consideration as companies scale. And then we layer on different products and services. And they get bigger and bigger. Yeah, and it's important to note that even really well-funded startups have trouble doing business with banks. Because it's very, very high risk. So what happens when a startup that you've decided to back goes south, and you realize you have a Fyre Festival on your hands? Yeah. We don't call it a Fyre Festival, but it happens, right? Companies don't always work out. And so what our approach has always been that we're working with the investors. We're working with the management teams to what we call is a soft landing, right? How do you end up in a situation where you can come up with the best outcome possible in a difficult situation, right? And that means trying to figure out, OK, can the business-- does it have intellectual property? Is there something there that that can be sold to another partner who values that in some way? And so we work with kind of the other constituents to make sure that we're doing as much as we can. A lot of it, the reason we think that way is because entrepreneurs, they're not done. With that company, even if it doesn't work out, they're going on to the next company, right? If you're working with a venture capitalist, they're not done just backing that one company. They're going to work with other companies. And so it's a very long term relationship that we look at both with the entrepreneur and with the venture capitalists. And so we try not to overreact in situations when it becomes, as you described, a Fyre sale. 

Insights: How Silicon Valley Bank Decides Which Startups to Fund

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The risks involved funding startups and entrepreneurs.

How Silicon Valley Bank Decides Which Startups to Fund

A discussion of the risks involved funding startups and entrepreneurs. (June 2019)

How do you both a company before deciding to give it credit. What? One of the factors? You? Yeah. So there's several things, right? So what is? You know, you gotta look at how they have been capitalized, if at all. Right? So they've raised some seed financing of some type that helps the private When you, when you don't have revenue and you truly are getting started. That's one of the only ways that you can assess. You do look at that the team itself. But it starts with just kind of Howard there capitalized, beginning for revenue, and you look at the people who have back company. Well, may not be so. This is pre pre pre revenue, and it could be pre venture capital, right? So it could be have their raised a seed round from somebody, right? It may or may not be venture capitalist venture capitalist. That obviously helps. But if it's other ways, we have raised money in other ways. We'll take a look at that as well, so it starts out when we were talking about it, that how much money has been raised before. That's what you mainly look at before there's any revenue. Once they start having revenue, you could start looking at metrics and you could start to lend to those metrics. And that is really helpful. So we don't just look att, capitalization. We clearly look, a great crop is in there. That's a very important, you know, check the box that it is a great great venture capitalists involved. But but that's just what It's one piece of the puzzle right there. It's also important, as much of it is a a important check that you're involved or other venture capitalists are involved, right? We look at other. We look at other factors and, you know, I mean, startups don't always work out and there is no guarantees, right? The venture capitalists aren't guaranteeing the debt. Individuals also aren't guaranteeing the debt, so the principles of the firms. So we we do have to look at the business overall and what the prospects are for success. It's all that comes into consideration is cos scale and then we layer on different products and services. They get bigger and bigger. Yeah, and it's important to know that even really well funded startups have trouble doing business things because it's very, very high risk. So what happens when a startup that you've said it back go south and you realize you have, you know, a fire festival on your hands? Yeah, art. We don't call it a fire festival, but, uh, you know, it happens, right? Cos don't always work out. So what our approach has always been that we're working with. The investors were working with the management teams to what we call a soft landing. Right? How do you end up in a situation where you could come up with the best outcome possible in a difficult situation? Right. And that means trying to figure out okay, can the business doesn't have intellectual property? Is there something there that that can be sold to another partner who values that in some way? So we worked with kind of the other constituents to make sure that we're doing as much as we can. A lot of it. The reason we think that way is because entrepreneurs they're not done with that company. Even if it doesn't work out, they're going on to the next company, right? If you're working with the venture capitalists, they're not done just back in that one company, they're gonna work with other companies. So it's a very long, long term relationship that we look at both with the entrepreneur and with the venture capitalists. So we try not to overreact in situations when it becomes, as you described it, a fire sale.