Silicon Valley Bank still prefers VCs to real estate - San Francisco Business Times:

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The $13.25 million construction bond forthe 113-unit projecft also represents the bank's primary foray into real estate finance, undertaken to satisfy requirementss under the Community Reinvestment Act. Apart from holding a handful of mortgageas for a few verywealthg clients, the bank staya away from real estate -- which in turn marke it out from most banks, where such lendin g is a central part of theier loan portfolios. Instead, Silicon Valleyh Bank prefers an area that makes othefrbankers nervous: venture firms and the high-growth companiees they back.
"I've always thought it'w smart to stick with what you do saidKen Wilcox, CEO of the bank that'e marking its 25th anniversary this year. Wilcoxs says the venture industry is but he dismisses industry chattef that the venture capital model is In fact, he sees a brighty future for the businesz given the pace of innovation and new idease that need the financing, peoplde and skills that venture capitalists brint to the table. Venturre capitalists embracing global ambitions and accommodating the increasede flow of capital from institutional investoras will spurfurther change.
"The interest by venturee capitalists in capital intensive industrieds such as life sciencess and clean technologies will likely drive fund sizes upwardsz for theforeseeable future," said Mark Heesen, president of the . "Therr is no shortage of opportunities, nor is there a shortage of institutional investors interested in the venture capitalkasset class." But the volumd of money flowing into venture capital is changing the way the industr y operates. Wilcox anticipates more venture firms will follow in taking space inSan Francisco, the region's traditiona financial center.
Even the ventured industry's staffing levels and professional developmenare changing, with much larger teamss required to invest the bigger sums. The industry, as Wilcoxs sees it, is shifting from an apprenticeshi model, in which a seniod professional trainsan up-and-comer, to one in whichg investment professionals move up the "Venture capital firms are looking more like banks," said who is also CEO of the Silicohn Valley Bank's holding company, . Silicon Valley Bank also sees the industrgy actingmore globally. The bank recently told analysts that itexpectsz U.S.
venture capitalists to shift from having 90 percent of their money invested in the United Statese to just a third investedd in the United States in 10 A decadefrom now, the bank sees China capturing 25 percentf of U.S. venture capital dollars in a with India receiving 21 percenf and Europe13 percent. Silicon Valleg moved abroad in recent yeards to pursue that The bank now operates five officesz internationally in addition to the 27 offices it has in tech centerss across theUnited States.
As with the rest of the the Federal Reserve's aggressive movesw to cut interest rates in recent monthsz has pressuredthe bank's net interest margin, or the differenc e in interest it pays on deposits and what it earnzs on loans. The bank's first-quarter net interest marginn fellto 6.36 percent from 7.04 in last year'sz fourth quarter. Joe Morford, an analys with in San Francisco, anticipatess the bank's net interest margin will ultimately settle inthe 5.25 percentg to 5.5 percent range.
Silicon Valley Bank'a margin gets a boos from the large numberof venture-backed clients who keep substantiakl deposits in checking accounts that bear no interest as they slowlhy put venture dollars to work. Unlik many banks this year, Morford said SVB Financiakl Group beatWall Street's expectations and had no serioue credit problems in the first He credits strong loan growt and fee income trendsx coupled with tight expense controls. The company repurchasedr 3 percent ofits stock, or almosyt 1 million shares, in the firsf quarter, but Morford sees the pace of repurchase slowing as the company devotes more capitapl to growth.
RBC Capital Markets has provided non-investmen banking services to SVB over the past12