Banking on Beginners

Silicon Valley Bank starting up in Germany

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A whiff of cool California tech financing. Source: Fotolia

Invitations have gone out for one of the most eagerly awaited launch parties of Germany’s rapidly growing startup scene. After months of rumors, Phil Cox, the head of European operations at Silicon Valley Bank, this week confirmed that it is applying for a German banking license and will open an office in Frankfurt, the nation’s banking hub. Predictably, the kick-off party will take place in much hipper Berlin, the epicenter of the country’s startup community.

The arrival of SVB, among the top 50 largest banks in the US, promises to add extra fizz to Germany’s venture capital landscape, which remains dwarfed by its American rivals in size and access to capital. Jörg Zeuner, chief economist at German state-owned development bank KfW, said SVB’s decision was a “good sign for Germany as a location for startups.”

Founded in the early 1980s, as Silicon Valley was morphing into a mecca of high-tech, SVB now claims a 25 percent market share for lending and finance to California tech industries. Since 2004, it has steadily increased its overseas activities, launching operations in the UK, Israel and China in the mid-2000s.

SVB hopes to capitalize on its international network of contacts and clients and edge into the financing of mid-sized industrial firms.

Before expanding into continental Europe, SVB took a close look at France and the Nordic countries before settling on Germany. The bank says it was ultimately drawn to Germany by the depth and energy of its startup scene and what it describes as a straightforward legal and regulatory environment.

Initially, its German business will be conducted by a handful of staff through a branch rather than a subsidiary, meaning SVB won’t provide a full range of banking services. Fortunately, it has a proven template for its international expansion: In 2004, SVB started small in the UK and now employs 200 people in its London operations. For Frankfurt, the bank plans to expand rapidly and offer its full portfolio of services by 2021.

True to its name, SVB specializes in loans for startup technology companies. In Germany, traditional banks often look askance at tech startups’ poor cash flow and non-existent profits; direct loans to startups are still comparatively rare, and company founders prefer to look to specialists such as SVB.

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SVB is also active in leveraging buyouts of more established tech firms, and lending money to venture capital firms and other financial investors. But with decades of experience supporting over 30,000 Californian firms, lending to startups is what it knows best. In going to Germany, it hopes to capitalize on its international network of contacts and clients and edge into the financing of mid-sized industrial firms.

The bank’s international expansion is prompted, at least in part, by the maturity of the domestic US market. Mr. Cox says the bank’s international business contributes between 10 and 15 percent of its overall revenues, but represents a whopping 35 to 40 percent of its growth.

Yasmin Osman is a financial editor with Handelsblatt’s banking team in Frankfurt. Brían Hanrahan adapted this story into English for Handelsblatt Global. To contact the author: osman@handelsblatt.com

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