"Good startups will continue to get their capital"

The share prices of tech companies are plummeting. The first founders are also worried about their planned financing rounds. But the startup industry is still far from a crisis, says Andrew Parker in an interview.

Andrew Parker has been working for Silicon Valley Bank in Frankfurt since August of last year. The financial institution has made it its mission to support high-tech companies and startups and has been active in Germany since 2018. In an interview, Parker talks about the current financing climate for startups - and what he sees as the most important criteria for investors.

Mr. Parker, the first founders are already worried about whether financing rounds planned for this year can take place as they hope. How do you assess the current situation?

My impression is that investors entering startups in pre-seed, seed through to Series B funding rounds are not impressed by the poor sentiment in the tech equity markets. After all, if they invest now, they have no interest in making an exit directly. So they have enough time to sit out the current phase.

What about startups that are going for Series C or even later financing rounds?

The situation could soon be different for them. Investors tend to enter with the goal of an exit in a few years. They have to pay more attention to how the stock markets develop. However, I am not aware of any case where a large German start-up has closed a significantly lower financing round than planned. Larger start-ups can still afford to put their money directly into their growth - provided it is sustainable growth. If a startup still has funding to last 18 months, it doesn't have much to worry about.

So we're not at a major inflection point in startup investment right now?

There continues to be a whole lot of money in the market."

I don't think we're going to see a big drop-off in funding rounds. There continues to be a whole lot of money in the market that wants to be invested. Investors continue to have a great desire to find promising startups. However, they are looking more closely at which companies they put their money into. Good startups will continue to get capital without any problems.

But the amount of funding money has already decreased significantly recently. According to data from Dealroom, startups have received a total of $2.7 billion so far in the second quarter, down from $4.5 billion in the second quarter of last year. They're unlikely to make that up by the end of the month.

Yes, the 2022 numbers look significantly different than the 2021 numbers, but you have to put that in context. 2021 was definitely an exceptional year, by the way, also with strong fluctuations from quarter to quarter. The number of new Unicorns created was also unusually high. I think we'll just see a normal year again in 2022, at least in the venture capital market.

Silicon Valley Bank launched in Germany in 2018. What potential do you see in Germany for startups in general?

Before I came to Germany, I worked for Silicon Valley Bank in England. When I compare these two countries, the German startup ecosystem still lags a bit behind. But the conditions here are good. I see no reason why Germany couldn't catch up with the UK and pour just as much money into promising startups here. There are already some very successful German VCs, plus more and more European or even U.S. funders are getting involved in German startups.

The quality of the founding and management team remains crucial."

Silicon Valley Bank focuses on venture debt, among other things. In other words, they grant loans to startups and hope that they can repay them, if possible, after the next round of financing. So far, this financing method has not really been popular in Germany, why is that?

Silicon Valley Bank has been doing this in the USA for a good 35 years now. Companies in the U.S. market and investors there have a much better understanding of how venture debt works. Venture debt is becoming more and more popular in the UK, where we have been active for a good 15 years now and communicate the advantages. Such loans are always worthwhile for founders if they do not want to sell further shares in the company. I think it's only a matter of time before more start-ups turn to this form of financing as a supplement to a traditional financing round. The volume of venture debt financing is also growing steadily in this country.

What criteria are decisive for you when you invest in a start-up?

The most important criterion for me is and remains the quality of the founding and management team and the business idea. If a start-up is well positioned there, it will not be thrown off course as much by global crises such as inflation or even the effects caused by the war in Ukraine. This also helped during Corona's economic crisis.

About the person:

Andrew Parker has been with Silicon Valley Bank for six years, first in London and since last summer in Frankfurt. With his team, he is dedicated to providing financial solutions, including debt financing, to early-, growth- and late-stage technology companies.