Banks are usually not a source of early financing for tech start-ups, which typically get their investment capital from high-net-worth individuals (especially former tech entrepreneurs) or venture capitalists.
However, there is an exception: Silicon Valley Bank
But after the dot-com implosion, the bank realized it needed to restructure its operations and diversify. For example, through internal projects and acquisitions, Silicon Valley now offers services such as investment banking, through which it helps companies structure mergers and acquisitions, private placements, and strategic alliances. It also now has an asset-management division aimed at those with high net worth, and it has expanded internationally, to places such as Bangalore and London.
How are things working? Well, last week, Silicon Valley Bank released its first-quarter results. The company generated earnings per share of $0.62, up from $0.38 year over year. Loan growth and a higher net interest margin were the primary drivers behind the increase.
And the growth should continue. Series A venture rounds -- the first amounts of venture capital for a company -- have been increasing. (There were, no doubt, declines from 2001 to 2003.) Because of Silicon Valley Bank's experience with early-stage companies, the firm should continue to have an edge in getting these new clients.
The uptick in tech M&A should be a benefit, too. Until a few years ago, the bank focused on companies that had the potential for launching IPOs. But it learned the hard way that the IPO business can be fickle and that a drought can last for several years -- as was the case between 2001 and 2003. Now with its investment-bank arm, Silicon Valley can benefit from companies that exit through M&A. And with the burdens of Sarbanes-Oxley, it seems more likely that small companies in particular will choose to take their existing shares private.
But there will still be some IPOs from clients. And who knows? Maybe Silicon Valley Bank will be there to help the next Cisco or Electronic Arts get its start.
Fool contributor Tom Taulli does not own shares of any companies mentioned in this article.
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