SCB Financial Group

VC investment was 13 B in 1000 deals, investments in early stage companies have declined though

“USVC Investment remained healthy in the first quarter with $13.4 billion invested in 1,020 deals. This is a strong number, nevertheless we’re paying attention to investments that are early stages which have declined in the past four quarters to see whether that decrease may impact our new client acquisition and so far, it has not.”

Highest level of optimism among tech entrepreneurs in six years

“76% of the 1,100 executives and entrepreneurs we survey this year said their company met or beat revenue targets in 2014 and 71% expect even better conditions in 2015. This is the second highest level of optimism among our survey respondents in the six years; we’d be doing this research.”

Very low non performings, but increased

“Non-performing loans increased by $6 million to $45.5 million in the first quarter and also remain low at 31 basis points of total gross loans.”

Growth has recently been more tilted towards PE

“our growth is in recent years has been increasingly tilted towards the private equity fund end of the spectrum and those funds tend to borrow larger amounts and keep them outstanding for longer periods of time then and I think that is contributing to what maybe becoming a new normal in terms of utilization of credit facilities in that segment of the portfolio.”

I don’t see us extending the duration of our securities portfolio

“I think at this point the duration we have in the portfolio is very sensible. Particularly when you consider the size of our investment securities portfolio in relation to our total assets. So at this point, the notion or the idea of going out longer in this lower rate environment, I just don’t see it’s really going there.”

Seeing pretty aggressive competition in sponsor-led buyout lending

“let me comment about the competitive landscape on sponsor led buyout. So the sponsor-led buyout is absolutely a very competitive market and what we have seen is, more firms are looking to chase yield and clearly that’s one area where yields have been up on a higher level basis, when they have been that way for quite a while. Although clearly the margins have gone down from their peak.

What we’re seeing is, you’re seeing some bank competition, but you’re really seeing more non-bank competition again from one of the reasons I talked about it, had a good track record from a credit quality perspective number one and number two. You know the yields there are better. So you’re seeing more senior lenders and you’re seeing more mezzanine lenders and they’re willing to put pretty aggressive terms on the table.”

SVB Financial 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Lots of avenues for capital for startups

“sources of funding for innovation companies are expanding, capital from angel, seed funds, incubators, crowd sourcing, peer-to-peer funding platforms and successful entrepreneurs, are funding a growing share of early-stage companies”

VC reached highest level since 2001

“In the second quarter, VC funding reached its highest level since 2001 at $13.9 billion across 974 deals. In the first half of 2014, U.S. VC funding grew to $23.9 billion, a 71% increase over the first half of 2013.”

This is not a bubble, the innovation economy is getting larger

“The short answer is, we don’t believe this is a bubble, but the valuations of some companies and a few industries reflect very high expectations. Here’s what we’re seeing. The pace of new company formations is high and the solutions these new companies are providing are broad-based, so the innovation economy is getting larger, and that’s good for all of us.”

Maybe media and ad tech companies have gotten a little frothy

“media and ad tech have experienced some frothiness, mainly due to the large number of companies being funded in this space, combined with high valuations. So-called sharing economy companies such as Uber and Airbnb have also been — have also seen some impressive valuations, but the potential for this type of company to disrupt and dominate entire industries on a global basis appears to set them apart.”

Small cap biotech seems reasonably valued too

“despite some frothiness among small-cap biotech companies, mid- and large-cap biotechs appear to be appropriately valued based on their very high growth rates.”

It’s the best quality best performing companies that are receiving the highest valuations

“the innovation economy is thriving, and it’s generally the disruptive companies, the best performers and those with the largest market opportunities that are achieving the highest valuations.”

Competitors at SVB’s gates

“we’re in a market that is a very coveted market…even though there is a competitive landscape out there that is intensifying, I would tell you that the amount of deals we’re winning and the feedback we’re getting from clients and venture capitalists and investors is still incredibly positive. ”

The companies are executing

“the company’s performances that we’re seeing with these growth stage and later stage companies is incredible. I mean, it’s the best performance that I’ve seen, highest growth is collectively in my 21 years at the bank”

Startups are the most liquid we’ve ever seen

“we’re seeing, on a regular basis, rounds of financing for private companies that are $30 million, $40 million, $50 million, $60 million, $70 million on a regular basis. That’s something we haven’t seen — I haven’t — I actually have never seen that consistent number of companies raising that level of capital. And it’s for growth, it’s for acquisitions. And there are — a lot of these companies are just keeping it on their balance sheet for liquidity. Essentially, one of the reasons why we haven’t seen this much loan growth in the corporate finance area is because that market is so liquid. And — so they have so much liquidity and they’re asking themselves, why would they want to borrow money even at today’s interest rates for doing acquisitions or anything else. They’re just using cash to finance it.’

Big difference in cost of starting a company now vs. 99

“There’s a few things that I would say are different. One is the overall cost to get a company started is a lot — a lot less. So on — I would say, a relatively small amount of money, these companies can get formed, funded, with a little bit of money, and all of a sudden, hit revenue relatively early. And being back here in ’99 — I mean, ’99, 2000, I mean, it would take a fair amount of money. And they would say, “Okay, we’re going to raise $20 million, $30 million, $40 million. And we’re going to build something,” and the valuation would be high, and they also wouldn’t have any revenue yet. So when you’re either lending money in that scenario or if the market turns down and the money goes away from an equity perspective, so people aren’t willing to invest in these businesses, there’s nothing left in the business, right. So the business goes away. What — my view is, of the business models today, again, as they get — revenue picks up, they get further along. Now the valuation may come down as the market corrects, but the company that’s generating revenue is still going to have a value in general, and that’s a big distinction.”