Evening Read: Investors sit on record levels of dry powder, says Silicon Valley Bank’s UK boss
In recent months we have glimpsed potential opportunities for the post-Covid economy: the huge acceleration in technology adoption, both corporate and personal. And that’s good news for London’s technology and innovation space.
But to get startups’ ambitious growth plans off the ground and put the pandemic recovery into motion, sources of capital are needed: financing that Silicon Valley Bank provides to both innovation companies and their investors.
In a wide-ranging interview, Erin Platts, EMEA head and president of the UK branch at Silicon Valley Bank, sits down with Morning Wire to discuss the current state of the start-up and tech sector in London and beyond.
They touch on post-Brexit market conditions and why the two fintech heavyweight is optimistic about company formation and job creation in the UK innovation economy.
Erin, you moved to London more than 15 years ago, as the fifth employee to help build the London team at SVB. The word Brexit did not even exist back then. Now we are in a post-Brexit world, how will this impact London’s investment space and digital innovation economy?
We have to look at the short-term and medium to long-term impact we expect Brexit to have on the innovation economy. In the short-term, we expect the momentum and pent-up demand for investing in UK tech and healthcare companies to continue. This is based on the breadth and depth of the quality of UK companies that exist today as well as the billions of pounds worth of capital, or dry powder, to deploy across all life stages.
We also expect to see positive M&A and IPO activity across the UK and Europe with Brexit having a minimal short-term impact. This in turn should result in the recycling of talent, capital and expertise into the ecosystem in the next 12-24 months which is a very positive sign and indicator of future potential and growth.
And what about the long term?
Yes, if we don’t address several key issues, it could impact the UK’s medium and long-term growth and attractiveness. Challenges include ensuring access to broader talent beyond tech, such as in operations, sales, marketing and product, plus the need to ensure that regulatory and trade issues are ironed out to help the UK remain competitive as we refine the rules and regulation. This will help make the UK an attractive and frictionless business environment to both start and scale new companies.
Fintech and tech valuations are often sky-high, some investors call them unrealistic and even problematic. What do you make of that?
Valuations continued to balloon in 2020 bolstered by larger and quicker rounds, widening the divide between those companies with easy access to funding and those without. A big concern at the onset of the pandemic was the impact it would have on the exit environment for VC-backed companies, but high-profile listings in Q4 elevated 2020 to a banner year for liquidity. Late-stage valuations are expected to increase as general partners are sitting on record levels of dry powder and will continue to pay a premium for the perceived best companies.
How have Covid and the ongoing pandemic impacted your work and lending decisions?
Covid has bifurcated the market, with some sectors having thrived and overperformed, whilst others like Travel and Hospitality have unfortunately suffered due to lockdown. The net outcome is that we’ve seen fantastic growth overall as an innovation sector as the pandemic has accelerated innovation and driven adoption in a number of ways across online spending, gaming, ed-tech, cyber security and beyond.
High-profile listings in Q4 elevated 2020 to a banner year for liquidity
This has accelerated demand for our banking and lending services at SVB, but there is not a one size fits all approach. We have remained committed to this market and have tried to be consistent and proactive in our support; whether that be through continued lending, introductions to capital or talent or sharing best practices across our portfolio.
Vaccines are being rolled out, the economy is slowly reopening. Are you optimistic about the remainder of this year?
Yes, despite the macro-headwinds from Covid, economic backdrop and Brexit, we are in a really strong position as an industry and the future looks very positive. We’re hopeful and optimistic that the innovation economy will be a leading light and driver for job creation, support the recovery from Covid and deliver further solutions to tackle the pandemic through advances in healthcare and life science technologies.
We are seeing the creation and deployment of new technologies that are helping with day-to-day life and it’s exciting to see what additional innovation we will see in the future from UK companies.
Finally, diversity and equality are increasingly on the radar of tech investors and other City firms. Do you feel most fintech players have a serious strategy in place or is it merely hollow talk? For example, look at differences in pay.
In many ways we have seen record breaking progress and momentum as an ecosystem but unfortunately Diversity, Equity and Inclusion (DE&I) is not an area that has followed at the same pace and we still have a tremendous amount of work to do to make the innovation economy more diverse and inclusive. We need to translate the conversations around DE&I into real tangible results. I’m optimistic that we have seen a shift in attitude, but collectively as an industry we know we have to put the talk into action to make a real difference.