John Lee, a VP with Silicon Valley Bank who focuses on lending to early stage companies, gave a nice talk on Tuesday to a group of about 50 at UCD’s Venture Catalyst. SVB is one of the more creative banks in lending to startups, so getting Lee’s perspective on what they are looking for provided some useful insights. The overall theme seemed to be that SVB likes to get to know the team and its venture investors before lending, so that when the inevitable work-out of a loan facing default occurs, SVB feels it is dealing with reasonable people who will all help out.
This led to a question on the Bank’s view of lending to crowdfunded companies. It was not so welcoming. Basically, the Bank saw the potential of dealing with hundreds of small investors if a loan got in trouble as not being desirable. This seems like an opportunity, given the rising popularity of crowdfunding, for someone to come up with a way to deal efficiently with a group of small investors in a company that found itself in trouble on a bank loan. A good opportunity for a clever innovator. As it stands, it appears the only way out for such a company is a new round of crowdfunding to avoid using a bank term loan altogether. This would push a crowdfunded company inevitably toward being a fully public company so it can access a larger and larger “crowd” as it needs more funds. Something all those considering equity crowdfunding should keep in mind.
On the other hand, if a company crowdfunds pre-orders for its product, SVB would be willing to use a letter of credit or “asset-based lending (ABL)” as an option, probably more than any bank would consider.
CleanStart will likely invite Lee back to talk to a larger audience of early stage companies who could learn from his presentation. He also said that in such a case he would also bring someone from their team that specializes in lending to clean tech and sustainable companies. Watch for an announcement on this.
ABOUT THE AUTHOR
Gary Simon is the Chair of CleanStarts Board. A seasoned energy executive and entrepreneur with 45 years of experience in business, government, and non-profits.