Berthold Brecht once said that founding a bank was a far worse crime than robbing one. But then he obviously never met Larry Lopez, designer-friendly banker to the hi-tech start-up and enthusiastic supporter of the innovator.
In his role as a senior vice-president of California’s Silicon Valley Bank, Lopez has bank-rolled such success stories as Amazon.com, Cisco Systems and Bay Networks – and carved a profitable niche in lending money to embryonic technology companies which have no assets and huge development hurdles, and which scare off most conventional banks.
So radical has been Silicon Valley Bank’s approach to funding high-risk multimedia start-ups that Department of Trade and Industry supremo Peter Mandelson stopped off there during a fact-finding mission – and told the DTI mandarins back home to hook him up to the Internet pronto. Not surprisingly, the Design Council gave Lopez star billing at last month’s Design in Business Week, in a bid to persuade Britain’s investment community to look more favourably on young innovation firms.
Sitting in the minimalist foyer of London’s Metropole Hotel, Lopez cheerfully admits that he is probably “the antithesis of the conservative banker”. Around a fifth of his bank’s clients are in software, which includes multimedia communications of all kinds, making Silicon Valley Bank the largest independent bank in the world’s strongest technology innovation region.
When it comes to backing what he calls “the industries of tomorrow”, Lopez describes himself as “an evangelist, a nut”. But it wasn’t destined to be like that. He hails from a traditional banking family – his grandfather and uncles were bankers in the US and Chile – and he studied banking in Menlo Park, a small American town where one sixth of the world’s venture capital is located. At his first job at the Pacific Bank in San Francisco, “I was trained in the classic British system. Technology did not exist for us, even though we were sitting right next to Silicon Valley and all those hi-tech companies.”
It was only when Lopez met the chairman of Silicon Valley Bank at a party in 1989, and was offered a job the next morning, that he boarded the innovation express. His inherently cautious banking credentials mean he approaches each deal with essential criteria which must be met.
Here are Lopez’s five key questions for any company wanting to borrow money:
1. How quickly can the enterprise be explained?
Innovators must be able to communicate the idea – and why it will work financially – sim ply and quickly. “If it takes half an hour, forget it,” says Lopez. “I use ‘elevator analysis’. You must be able to tell a stranger all about your idea in the elevator before they get off.”
2. Does the entrepreneur have a team to see the business plan through? Groups must already have a suitable management team in place or recognise that they will need to recruit a new chief executive in 18 months to meet their objectives, says Lopez.
3. Does the entrepreneur have access to venture capital? Lopez believes multimedia groups won’t succeed just by borrowing money from a bank. “They can’t do it all exposed to bank debt. They need venture capital for R&D, then they can use bank loans for trading assets such as equipment and cash flow. New product development is not a debt play.”
4. Does the entrepreneur want to get rich – or want to be famous? “If they want fame, I’m not interested,” says Lopez.
5. Is the personal chemistry right? “I tell entre preneurs they’ve got to surround themselves with advisors they can trust,” says Lopez.
He applies these rules not just to technology, but also to life science and premium wineries in northern California. “We’ve got both ends of the Bay taped – Silicon Valley to the south and Napa Valley to the north,” laughs Lopez. But he becomes deadly serious when asked about British attitudes to innovation investment. “The UK is just at the beginning of the cycle in building a knowledge-based economy,” he says. “The UK was an industrial pioneer, but where are the great British technology companies for the next century? BT is a player, but there’s a huge gap.”
As if to underline the ground to be made up, Lopez recalls an incident during a recent “Britain Meets the Bay” exercise in San Francisco. “The British Consulate wheeled out that genius Prince Andrew, who really understands technology, to meet a group of us from Silicon Valley. We were instructed ‘don’t speak to him unless he speaks to you’. It was all I could do to stop myself from walking right out of the room.”
Lopez continues: “The mistake everyone makes when they go on a trade mission to Silicon Valley is to ask – how can we replicate that? Well, they can’t. The convergence of factors which created Silicon Valley were unique: the academic institutions; the entrepreneurial spirit which is the culture of the region: the weather – people like to live there; and the early successes which meant that capital was recycled – Silicon Graphics spun Netscape, for example.”
Lopez doesn’t blame British bankers for current sluggishness in supporting the hi-tech pioneers of tomorrow in the UK. “No, I’d blame it on tax laws.” He compares the UK unfavourably with Israel, which changed its tax laws six years ago to support young technology companies and now has 80 of them listed on the Nasdaq stock exchange. “Israel has created a favourable tax environment for foreign investors, strongly supported its academic infrastructure, and utilised its immigrant influx of Russian scientists. The results have been spectacular. It has attracted billions of dollars of venture capital.”
The message Lopez took to seminars during Design in Business Week was that “creating a holistic community” is key to building a successful IT economy. “You need to nurture an innovation culture and then exploit it to create wealth. That means having the right venture capitalists and the right service providers – accountants who will find ways to account for intangible assets on the balance sheet, attorneys who will protect ideas, and bankers who will lend money to young companies.”
Lopez has clearly written his own role in the holistic community of Silicon Valley – and even has UK companies, such as laptop services firm Teleadapt, banking with him. Perhaps what we need now is a British banker to break the mould in the same way. Any innovators in the Square Mile? – or was Brecht right after all?