High-tech businesses get financial help

Silicon Valley Bank focuses on start-ups

October 03, 1999|By Mark Guidera | Mark Guidera,SUN STAFF

When Louise Sengupta, a founder of Paratek Microwave Inc. in Columbia, went searching for a bank to establish a line of credit with, she ended up with one practically unheard of in the mid-Atlantic: Silicon Valley Bank.

But Silicon Valley Bank is no stranger to chief financial officers and executives at regional high-technology start-ups.

During the past three years, the Santa Clara, Calif.-based institution has quietly built a $100 million credit portfolio among dozens of promising high-technology ventures in the Baltimore-Washington-Northern Virginia region.

As a result, experts say, the bank has helped fuel the region's booming technology sector by providing critical resources -- namely, money and cash management advice -- to young ventures that otherwise might spend valuable time on keeping afloat rather than on building their businesses.

SVB's success, meanwhile, has drawn a sprinkling of other technology lending specialists to the area.

"They seem to understand the many risks associated with starting and running a technology company," said Sengupta, president and chief executive officer of Paratek. Launched 18 months ago to develop low-cost wireless communications networks, Paratek considered three other lenders before signing on with SVB.

"The bank had a comfort level with risk, which made us feel they were the right one to do business with," said Sengupta.

As Sengupta and other entrepreneurs at high-technology start-ups can attest, finding a banker with enough chutzpah to set up million-dollar lines of credit for operating and equipment needs can be a high hurdle.

Traditional bankers often shy away from such deals as far too risky. For one, these companies often don't even have the requisite three years of financial statements many lenders demand.

Not Silicon Valley Bank's Michael Selfridge.

The energetic San Francisco native, who manages SVB's operations in this region, spends his days striking lending deals with companies that often have no sales, revenue or even products ready for market.

"The less time you spend behind the desk and keyboard, the more time you're devoting to building the brand and the business. I try to be out in front of clients as much as possible," said the 32-year-old.

His focus, the Baltimore-Washington-Northern Virginia corridor, has emerged as one of the nation's hottest breeding grounds for new high-technology businesses, particularly in the Internet, electronic commerce, software and communications industries, according to the Milken Institute, a California-based think tank.

And Silicon Valley Bank has carved out a successful niche among young ventures whose technology or market focus could be rendered obsolete within a few months by the rapidly evolving nature of technology today.

But there's also great potential.

Frank Tower initially set up the Maryland-Virginia operation for SVB in 1996 after spending about two years making inroads from his office in Boston.

Now a partner with Blue Rock Capital, a New Jersey-based venture capital firm with an office in Rockville, Tower recalls that the bank was lured to the region by a handful of venture capitalists, including Charles W. "Chuck" Newhall III at New Enterprise Associates in Baltimore.

"The first thing I noticed when I began contacting companies in the region was that they were literally starved for a bank," recalled Tower. "They couldn't find a traditional bank to lend them money."

Early clients, said Tower, included Digex Inc. and UUNET, today two of the nation's largest Internet service providers.

Selfridge, who previously was a senior vice president for SVB's international banking division, says echoes of California's Silicon Valley can be heard in the Baltimore-Washington-Northern Virginia high-technology corridor.

The region, he says, lacks the sheer mass of technology spinoff ventures and boot-strap technology start-ups that have made Silicon Valley, which stretches from Palo Alto to San Francisco, a mecca for angel investors, venture capitalists -- and even a few blue-blood bankers. But the potential is here.

"The same excitement is here. The same entrepreneurial spirit," said Selfridge.

"It's an exciting place to be doing business because there is this sense that the start-up client today could be the mega company tomorrow."

Despite the risk, SVB estimates that its nonperforming loan rate, or loan failure rate, is between 1 percent and 2 percent, said Selfridge.

That is on par nationally with mainstream lending institutions' commercial loan portfolios.

It wasn't always that way; in 1992 a recession and bad real estate loans led to such high charge-offs that the bank posted a loss and was put under federal supervision. That was lifted in 1995.

Since 1996, SVB has built up a $1.6 billion loan portfolio nationwide and $3.5 billion in assets.

The lion's share of the bank's approximately 90 clients in this region are clustered in the Interstate 270 corridor between Bethesda and Gaithersburg, and in Northern Virginia.

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