Greg Becker, an affable Midwesterner from Fort Wayne, Indiana, has perhaps one of the most unique vantage points into the inner workings of the startup world. After all, as CEO of Silicon Valley Bank, Becker’s firm not not only provides critical financing to thousands of startup companies throughout the world, but also serves as the bank for some 600 venture capital firms.
Before heading out to dine with some of Seattle’s tech leaders Thursday night (and after losing a competitive game of ping pong to yours truly), Becker answered a few questions about what he’s seeing in an interview with GeekWire.
In short, he’s energized by the pace of innovation, though he admits that some sectors (cloud computing, social networking, software-as-a-service) are overheated. Becker also shared some thoughts about Facebook’s IPO, saying the social networking powerhouse’s recent stock market pull back is a good thing for the tech community, adding that a skyrocketing public offering could have pushed valuations “out of control.”
Are things overheated right now in the tech market? “I think in almost every period there are little bubbles that exist based on whatever is hot…. The big difference now, and we talk about this all of the time, compared to 11, 12, 13 years ago in the late 90s is that there are business models where (companies) are actually generating revenue. You have people talking about the Instagrams and things like that where there is no revenue when they sold for a huge amount of money. But those are pretty big exceptions. A lot of these companies do have really strong business models, and I think the only question will be: Not, is there a good business there, but is the valuation an appropriate valuation in the end? And a lot of times you are not going to know for quite a while, right? You won’t know, depending upon what the M&A business is or what the IPO market is for these companies. But, I’d say, in general, things are going well. One of the gauges we use is just the number of startups that we are opening up and bringing in to the bank as new clients. Back in 2009 there was a slight decline, but since that time frame, 2010 was a great year, 2011 was much better and 2012 is even better … from the standpoint of new startup activity, and new startup formations.”
What’s the biggest challenge facing companies that bank with you? “Finding appropriate talent. It is such an anomaly relative to the rest of the general economy that it is hard for the general economy to grasp how different it is.”
What are your thoughts on the impact of Facebook’s performance in the public markets on the startup community? “In a strange way, I think it could end being a good thing and it could avert a bigger bubble. If Facebook would have taken off, and gone to the levels that people were talking about — a $150 billion valuation — all of a sudden all private companies’ valuations go out of control. I actually think what will happen is that it will be more tempered to more realistic levels, and I think overall it is healthier for the general technology industry to have a gradual pick up and nice balance, as opposed to these huge up-and-down shocks, which I think we’ve tended to have in different cycles. And we can’t lose track of — even though the stock is down from the IPO — the valuation is still $60 billion. How many people would volunteer to invest in a company with a $60 billion valuation?
You could argue about the Nasdaq and the investment banks and Morgan Stanley and whether they got too far ahead of themselves, only time will tell how that all plays out. But I personally think, in a strange way, it is a healthy balance of what was headed to a place of potentially irrational exuberance…. If they went out and had a complete out-of-control home run IPO where it would have gone up 50 percent or 75 percent, I actually think it would have fueled valuations that were too far ahead in the private sector. And, I think what this will do is temper a situation where it could have gotten out of control.”
On whether the venture capital model is broken: “It is not a question of whether the venture model is either working flawlessly or broken, it is like almost every business model: They are always in a state of evolution. Venture capital is a model where there is rarely that perfect balance of right amount of capital making the right amount of decisions. There’s either too much capital, or too little capital, and from the standpoint right now, I think it is going to go into a place where it is more difficult to raise venture capital…. It is a little bit less about the number of venture capital dollars, and it is more about how many companies are being formed. The venture capital model is going to go through a morphing, as it has done historically.”
On venture capital funds raising money and the possible Facebook effect: “It is hard fundraising. And I think that is another good part (of Facebook’s fall). If Facebook would have gone out and been that out-of-the-park home run, I think you would have seen more money flow into venture capital. And you have to be really careful how much money is going into that space, or else it will get overheated.”
On tech M&A: “We don’t see that slowing down. It is still the place where people see exits. Now, the M&A deals will not be as big as some of these IPOs that we’ve seen — the LinkedIns and Yelps and things like that — but clearly it provides good exits for the venture capital community.”
On New York’s surge as a startup hub: “It was a market that many of us thought was going to go the way of the dodo bird back in 2001, 2002. It was a ghost town from the standpoint of startup activity. Because of ad tech and digital media it has picked up, and we’ve seen a huge growth in startup activity there and we think that will continue…. They had a core competency in digital media and advertising, and what happened was the Internet came to them and met them, as opposed to New York went out to go get it.”
On access to capital for startups: “I don’t really see there being a real issue with access to capital, because it should never be easy to get money. If it becomes easy to get money, we are going to end up having a failure rate of companies at a level that is just not going to be healthy. It is supposed to be hard. Suffering through the process is what you do…. It should be hard enough, but not impossible if you have a good idea.”