Can HSBC Preserve SVB’s Innovation Culture?

Can HSBC Preserve SVB’s Innovation Culture?

The world woke up on Monday (March 13) to news that British multinational banking giant HSBC is purchasing Silicon Valley Bank (SVB) UK, the U.K. arm of the failed U.S.-based lender, for a token one pound sterling.


The news came after the U.K. government, the Treasury and the Bank of England (BoE) scrambled to find a buyer over the weekend in a bid to limit the damage on the U.K. banking ecosystem — a swift reaction James Hickson, founder and CEO at European revenue-based lender Bloom, commended.

“HSBC is a good safe haven for depositors,” Hickson told PYMNTS in an interview. “It was the right decision.”

The challenge, however, is how a legacy bank that was not necessarily designed with entrepreneurs in mind — unlike U.K. lender OakNorth, which also submitted a rescue bid — is going to preserve “the energy” that a tech-focused challenger bank like SVB brought to the ecosystem.

“A challenge they’ve got is to ensure that the culture does not get destroyed in the process and that all the factors that made SVB successful, including its ties to the VC [venture capital] community, are not lost,” Hickson said.

He added that the bank’s demise has left a large hole in the tech and life sciences markets, especially in Europe, where SVB was an important source of venture debt financing to the tune of $15 billion.

In fact, once a firm raised institutional venture capital, SVB was extremely efficient in providing venture debt to complement the equity raised. “And then the way they manage the venture debt cost was to take [stock] warrants in the business, and that made the risk-adjusted return for SVB acceptable,” Hickson explained.

Looking at the available venture debt on the continent, he said that the amount SVB injected into startups is “a sizable loss” and leaves many unanswered questions as to how HSBC can fill that gap, particularly when it comes to taking warrants, which retail banks are not set up to do.

Moreover, he added that Europe isn’t awash in the same way as the U.S. has been with equity and has significantly lower valuations, all of which made SVB’s venture debt a very attractive way for European founders to extend their runway.

“I don’t know what high street bank or what bank would take that same position today,” Hickson said, adding, “It’s a huge loss to the ecosystem.”

The Need for Alternative Lenders

As enormous as that venture debt gap is, Hickson said Bloom plans to make the best of the opportunity created and will help to cover businesses in need of debt products.

“We’ll do our best, and we have capital to do so,” he said, likely pointing to the $360 million-plus the revenue-based lender secured in May last year.

And speed is of the essence in this uncertain environment, which is why the growth capital funding startup is working to quickly approve applications to give entrepreneurs access to non-dilutive capital for specific short-term needs.

“We can lend millions of dollars to hundreds of thousands of businesses […] in quick time — two to three days and sometimes 24 hours — and they can pay that back based on their sales, or as part of one of our credit line products,” he explained.


Those debt products have seen a huge influx of demand from high-quality, underserved businesses in Europe, Hickson noted further, adding that they are still making sure they don’t compromise on their underwriting standards.

Overall, Hickson said the SVB crisis has revived the debate on how credit and alternative lenders are critical to the economy, particularly for fast-growing European businesses that have lending needs that traditional solutions are not equipped to meet.

Regulators Have Questions

At the time of writing, Bloomberg News had reported, per PYMNTS, that HSBC was prepared to commit $2.1 billion in liquidity to ensure that the U.K. subsidiary could conduct business as usual.

This, in addition to the access to capital that the purchase has provided, means that U.K. businesses with ties to SVB can now breathe a sigh of relief and meet their short-term cash flow needs.

But going forward, Hickson said alternative lending solutions like revenue-based financing will be key for high-quality, rapidly growing businesses that need to extend their runway and grow their customer base without incurring interest or losing equity.

For investors and founders, that trade-off offered by Bloom is a much better option than taking on more diluted capital in the form of equity, Hickson argued. “We see ourselves as complementing the existing capital stacks of businesses and that demand won’t go away.”

In the meantime, he noted that the next few days and weeks will be telling as to how companies navigate the crisis, particularly those like online marketplace Etsy that heavily relied on SVB’s core payment infrastructure to process seller payments.

And for founders who have gotten a reprieve from the HSBC-SVB deal, they can probably start working through what else needs to be done to manage the current risks in the market.

Ultimately, however, Hickson said regulators will have a key role to play to ensure that history doesn’t repeat itself: “There’s a large number of questions that have to be asked of regulators, and there has to be policy in place that prevents this from happening again.”

Read Hickson’s previous interview: To Survive Funding Drought, Startups Must Think Like Camels, Not Unicorns

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Written by Politixia


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