Lenders jostle for a slice of the ‘innovation economy’ after SVB’s collapse
A number of banks are stepping up their operations to take a chunk of the UK’s fast-growing innovation economy, prompted by the implosion of Silicon Valley Bank (SVB) earlier this year.
Although lenders had been eyeing up the space for months, many banks have ramped up their activity since the collapse of SVB UK, which had essentially cornered the market.
The UK’s high-growth economy – including tech, life sciences and climate tech – is worth $1 trillion making it the third largest in the world and a hugely attractive prospect for any lender that can secure a portion of it.
JP Morgan is one of the banks stepping up its ambition in the market. In July the bank hired nearly 20 people – some of which were former SVB employees – to work in its ‘innovation economy’ team.
Rosh Wijayarathna, head of innovation economy for UK & Ireland at JP Morgan and formerly of SVB, told City A.M. that expansion had always been on the cards.
“Events in March didn’t change the plan, only expedited it… We wanted to be a major player around the world, and when a major player goes under overnight, that speeds the plan up,” he said.
The US bank is aiming to have 50 members in the innovation economy team across EMEA by the end of the year. Regarding the UK, Wijayarathna said “we’ll continue building out the team as needed to accommodate the market”.
CIBC is another lender which has stepped up its ambitions in the market, reflecting the impact of SVB’s collapse as well as the opportunity that a growing market presents.
“I think it’s important to understand just how quickly the venture and growth lending space has increased in recent years,” Sean Duffy, managing director of CIBC Innovation Banking in the UK & Europe told City PM
“It made up 30 per cent of all venture capital in 2022, compared to 16 per cent in the previous six years. That’s an extremely healthy increase that has grabbed the attention of a number of banks,” he said.
CIBC currently has a team of four in the UK but told City PM it has plans to expand in Europe over the coming months.
David Strong, partner and head of venture capital at law firm Marriott Harrison, agreed that there had been an increase in interest for the market, although it was difficult to determine if that was directly due to SVB.
He said the problems in equity markets have encouraged the development of more debt funds as well as pushing banks earlier into the funding cycle.
“The traditional banks still struggle with it, but there are a range of specialist banks and debt providers focused on the early stage market,” he said.
Although the collapse of SVB in March opened a window of opportunity for rival lenders, the bank under its new guise, HSBC Innovation Banking, remains a powerful player in the market.
Erin Plats, UK chief executive of HSBC Innovation Banking, told City PM there had been “greater interest from other financial institutions” in the market. But she remained confident in the bank’s position.
“Our teams have spent a lot of time strengthening existing and new relationships,” she said. “We continue to work with clients as we always have on a 1-1 basis to understand their business and support them with a tailored approach that sets us distinctly apart from other institutions.”
A growing market means there’s plenty of space for more players in the market. Another factor is that investors are demanding that their companies engage with more than one bank.
Many firms were left unable to access their cash after SVB UK’s collapse, leaving them on the brink of collapse. Wijayarathna said firms are far more aware of counter-party risk and do not want to “put all their eggs in one basket”.
Platts admitted that the bank had seen clients spread their deposits, but said they had “equally benefitted from inbound deposits from existing and new clients”.