Silicon Valley Bank is heading into the private equity market this year with a full head of steam. At the end of 2000, it closed two venture funds totaling $178 million; one to invest into venture capital funds and the other to invest alongside venture capital firms in start-up companies.
The bank formed the $135 million SVB Strategic Investors Fund last year as a chance to invest money into venture capital firms. It put in some of its own money as well as some of its customers’ money to form the fund.
“We went out to our friendly relationships, and asked if they wanted to invest,” said Rick Shuttleworth, vice president of the bank’s Southern California technology division. The fund closed in November and the bank already has committed all of the capital to venture firms. The firms include Menlo Ventures, Redpoint Ventures, Sierra Ventures and Weiss, Peck & Greer Venture Partners, along with seven other commitments.
The other fund totals $43 million, to invest alongside the venture capital firms.
“We call it a side-by-side fund,” said John Otterson, a managing director with the company. The fund closed late last year and the bank has distributed about 20% of the capital in about a dozen deals, Otterson estimated. Otterson said the bank has been investing $250,000 to $500,000 per deal.
“We are not looking to lead these deals,” Otterson said. The venture team at the bank performs some of the due diligence for the deals but relies more on advice from the venture firms and various other resources, Otterson said.
“We spend time talking with the venture partners to find their rationale,” Otterson said.
To avoid any regulatory problems that might arise, the bank established the ground rules with the government agencies before the bank started its venture activities.
“We spent a lot of time working with them on the front end of the process, so they understood what we were doing,” Otterson said.
The bank was started in the Silicon Valley on the premise that it would be tightly tied into the venture capital community and provide banking services for both the venture capital firms and the startup companies in their portfolios.
“We’ve been lending to funds and lending to partners over the last five years,” Otterson said. The bank has invested capital into 200 different venture capital funds.
“This activity brings a more robust referral. We bring companies to the venture firms and they bring us companies on a post-funded basis,” Otterson said.
After the latest funds are distributed, the bank plans on developing more, though it does not have any specific plans so far.
The bank has four offices in Southern California: in Santa Barbara, Los Angeles, Irvine and San Diego. The bank also has a two-year old division, SVB Securities Inc., which is a licensed broker-dealer with the National Association of Securities Dealers. The division works with young companies that have angel funding and are looking for venture capital funding.
“We try to target the venture capital firms we know,” said Bonnie Renta, who is a director of the SVB Securities’ life science group and works out of the bank’s Irvine office. n
