Finding a banking solution that not only understands but can also support the dynamic and ever changing demands of a technology company can be tough. For over 35 years Silicon Valley Bank have been working with many of the worlds leading technology companies, and are the only bank in the UK to focus solely on the innovation economy. We spoke with Tom Butterworth, Managing Director Early Stage Banking at Silicon Valley Bank to find out the secret to their success.
Can you tell us about your background and your current role with SVB?
I was brought up near Bolton, Lancashire and also studied at Lancaster University – far removed from the tech centre in the South East! Though I have lived in London for over 13 years, I still think of the North West as home; it’s been great to see how the sector has developed in the region with a number of high profile success stories (and a growing number of Silicon Valley Bank clients!).
Prior to joining Silicon Valley Bank to head up the Early Stage Practice, I worked in Commercial Banking at RBS/NatWest and have been focused on working with tech and innovation businesses since 2007 – it is incredible how much the sector has developed over that 10 year period; I certainly never thought we’d be where we are today over such a short period of time.
I joined SVB four years ago to focus on pre-series A businesses. Our aim is to work with the best, most exciting early stage companies and provide great banking services, great client service, but also value add (such as connecting our clients to sources of capital, inviting them to tailored events and opening our network in the US). I feel incredibly lucky to work in this area – every day we are fortunate enough to meet amazing entrepreneurs that are looking the change the world for the better. The fact that we work with companies at the early stage means we get a lens into the future; for example, whilst AI and machine learning has now entered the mainstream consciousness, we have been working with companies in this space for several years – it is impossible not to get excited about that.
London is known as a central point for Fintech, but what other areas of technology are piquing your interest right now?
Artificial intelligence is now very much at the top of most lists of ‘hot sectors’ and justifiably so; it genuinely has the potential to revolutionise technology in a bigger way than the creation of the internet and could impact most, if not all, elements of everyday life. The UK arguably has the best talent in the world in this field, so I’m really excited to see what develops in this space over the coming years.
There is a lot of interest in cybersecurity given the volume of high profile cyber-attacks, as well as augmented reality and virtual reality (whilst awaiting mainstream adoption, the fact that AR is now a feature on the new iPhone shows its potential). I also see a lot of regtech – as a bank we are keenly aware of the challenges these businesses are trying to solve; it is a huge market.
Interestingly, there are a growing number of space tech companies coming out of the UK – this is an area that has always fascinated me and I find it incredible that we have clients that are making access to space more affordable and accessible.
We are also seeing a groundswell of interest in building companies with a social impact; these companies are looking to tackle some of the world’s biggest challenges using technology and innovation. Last week we were privileged to support the launch of Zinc.vc and their first mission which is focused on improving the mental health of women and girls – they are building something very special.
Do you feel London, and the rest of the UK, has sufficient infrastructure to give tech companies the best platform for success?
Despite having a population that is one fifth the size of the US, investment in UK fintech is half that of the US, which means that the UK, and London in particular, is really punching above its weight in the global fintech innovation arena.
The UK leads the way in terms of technology innovation, which brings a huge boost to the economy and job market. Silicon Roundabout and other tech clusters across the UK are burgeoning and have given rise to a strong ecosystem to which SVB contributes its expertise and international connections.
Outspoken support from the government and great organisations like DIT, plus tax incentives for entrepreneurs have generated a healthy environment for tech and life science businesses and their investors.
There will always be challenges, whether around public policy, access to talent or infrastructure, but the UK is a great place to start and grow an innovation company. Over a number of years it has become an engine of the economy; with the addition of fuel in the form of top talent and capital – the oxygen – we now have a real ecosystem with the recycling of capital and repeat entrepreneurs that go with that.
In another 10 years’ time, we will look back at this period and say that is when it really got started and that’s a key point; to use a sports analogy, we are in mile three of the marathon; we have found our pace, but there is still a long way to go.
How do you see the funding landscape in the UK at present, particularly for early stage companies?
Similar to the situation for startups globally, raising capital is not easy and nor should it be – building a company is incredibly hard and raising capital from external investors is not right for every company. We surveyed our early and growth stage client base and 81% stated that fundraising is ‘somewhat’ or ‘extremely’ challenging.
The UK continues to attract the lion’s share of venture capital in Europe – 39% of VC investment in Europe went to the UK and Ireland in the first half of 2017. At the early stage we are seeing the same trend across other stages; the total amount of capital being invested is similar to the last few years, but it is concentrated in a smaller number of deals.
However, there are a lot of investors with capital to deploy in the UK looking to invest in great entrepreneurs, teams and companies – great companies will always get funded.
What differentiates SVB from its competitors in helping early stage companies succeed?
While traditional banks tend to look at the track record of the business, how much profit it makes, and the assets on its balance sheet, SVB focuses on the creation of enterprise value, stemming from the underlying business model and/or technology, the management team, the investors and a deep understanding of the market in which the business operates.
At the early stage and, because we are 100% focused on the innovation economy, we work with companies based on their potential rather than what they are doing today; we understand that a small company can become a big company in a very short period of time (we work with some of the biggest tech companies in the world and have known them from startup). As a result, we can afford to lean in and provide high level service and unique value add to these companies – this is all we do; it’s not something we’ve recently got excited about, Silicon Valley Bank has worked solely in this sector for almost 35 years.
Also, how do you facilitate a company’s growth from ‘early stage’ to ‘scale up’?
This is really down to the business, but we can certainly help by providing value add, such as connecting them to appropriate investors, customers and providing access to our network both here and in the US. As a business scales, we also have the ability to provide debt solutions to minimise their dilution, extend runway and allow them to invest in the key drivers of the company’s growth.
When should a company get in touch with SVB, how early in their journey?
In terms of a formal banking relationship; firstly, it needs to be an innovation company. Secondly, it is really key that we are in a position to be able to add value that the company cannot get from another bank and that usually requires the company to have raised some initial capital and/or commercial traction.
However, we love speaking with entrepreneurs to hear about the amazing companies they are building and explore how we can be helpful. I would approach us at any stage in their journey and, even if it is a bit early for us to work together right now, we would love to stay in touch and work together in the future.