Christian Hoppe is co-managing director of Silicon Valley Bank, which specialises in start-up financing. In the interview, he talks about overvalued fintechs, why sometimes a beer mat is enough for the presentation and missteps.
Unlike the big financial institutions, Silicon Valley Bank (SVB) has focused on funding startup players and innovative companies, relying primarily on venture debt. SVB's deals have savings bank bosses shaking their heads because early-stage lending is often a risky proposition. Here, Christian Hoppe explains the concept - and why he sees tendencies of overvaluation in companies like TradeRepublic or WeFox.
Mr. Hoppe, Silicon Valley Bank doesn't want to be a normal bank, what do you specialize in?
We basically have four pillars that we serve: Firstly, we finance start-ups via venture debt, preferably over five years and from a volume of one million euros. In addition, we provide them with working capital lines or support them in acquisitions. As a second client group, we finance venture capital funds with so-called capital call lines. Our third client segment is leveraged buyouts, i.e. takeovers financed by private equity. The fourth segment is the classic corporate financing of medium-sized companies that are particularly active in the innovative and disruptive field.
What distinguishes your work from traditional lending?
Venture debt, i.e. the mixture of debt and equity, would not be available in these combinations at normal financial institutions. We have built up and expanded our expertise in these two areas over the years, and big banks can hardly threaten this lead, even if most of them are now slowly realising that start-ups are the future and not just flash in the pan.
How do you operate?
We are very activist, although not in the sense that we demand a seat on the supervisory board or anything like that. We help by making our broad network available, which means providing access to potential investors, customers and producers. We are not a capital broker in that sense. In the best case, we grow with the growth of our customers. And the ecosystem is in turn the basis for innovation. This can be seen in successful examples such as Biontech. We are very entrepreneurial in our way of thinking, trading and talking.
Sometimes a beer mat is enough to get an idea acrossChristian Hoppe, SVB
How do founders get money from you?
It's relatively simple, because we don't have any exclusion criteria and we finance from Series A onwards. We only look at three criteria: the business model, the founding team and the companies financing the start-up. As far as we are concerned, the start-up can still be loss-making, and in some cases we finance it even before it generates revenues. We usually invest when a financing round has just been completed, i.e. we add "debt" on top of the "equity" round, at a maximum ratio of 30 to 70.
What should founders bring to the meeting?
Honestly, sometimes a beer mat is enough to get an idea across and really light the fire for it. But then there are presentations of 30 PowerPoint slides, where I believe on the first 20 that nothing will come of it and then it still turns. There is no one perfect solution. My advice: Send me everything, I'll look at it and then we'll evaluate it. But even we make mistakes in the initial selection. My gut feeling has already led me wrong in the assessment of a business model - in the end it turned into a Unicorn.
There are currently many fintechs that are becoming unicorns. Are the valuations too high?
The valuation is what the valuation is. There are obviously investors who are willing to pay certain prices for shares in certain companies. But there are also current cases like TradeRepublic or Wefox - on the one hand, I'm really happy that they are so big, but if you compare the valuation with that of a bank like Comdirect, then certain tendencies of overvaluation are very clear. But fintechs can't help that: If some US fund comes along and puts quite a lot of money on the table for them and at the same time doesn't care about dilution, then they can heroically turn it down, but why should they?
In the long run, there's pretty much going to be a cooldownChristian Hoppe, SVB
Will we also see a cooling off again?
The scene will feed off the current fundings for quite some time and even then it could continue to go uphill. We all thought the corona pandemic might be a damper, but it was a boost. But yes, in the long run there will pretty much be a cool down. What it will look like though, and when it will come, I can't say. I just hope that the banks and investors who see startups as a "sexy thing" now will then stick around for the long haul. Because venture debt is a very sensible product, but it has to be used responsibly - at best through all economic cycles.
Thank you very much for the interview.
About Christian Hoppe: He is Co-Chief Executive Officer of Silicon Valley Bank Germany. He started there in 2017 and was previously the founder and CEO of Main Incubator GmbH, a wholly owned subsidiary and FinTech investment vehicle of Commerzbank AG.
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