Amid the rapid growth of the venture debt market in advanced economies including the US and Europe, venture debt plays an important role in funding the scale-up of mid- and late-stage companies. The global venture debt market has been led by Silicon Valley Bank (SVB) Financial Group founded in 1983 in the US. Against this backdrop, this article intends to conduct an in-depth analysis of the business model of SVB Financial Group and study the feasibility of introducing the business model to Korea, aiming for enhancing the qualitative competencies of Korea’s startup ecosystem.
SVB Financial Group has adopted a growth strategy under which it has forged strategic alliances with angel investors, venture capitalists and private funds in the form of equity investment and loans and offered loans only to companies eligible for equity investment by such investors. With this strategy, SVB’s venture debt business has prospered by forming a partnership with the startup ecosystem. As part of its strategy, SVB Financial Group has provided financing support tailored for the life cycle of startups. First, it classifies startups by the size of sales and arranges a nurturing service and seed funding for early-stage companies and follow-up equity investment and venture debt for those in the mid- and late-stages. Also notable is its differentiated risk control plan under which SVB offers a higher interest rate loan in smaller volume to earlier-stage companies with a smaller size of sales by setting up a credit limit of $50 million. Despite its short history, SVB Financial Group has been on a par with global financial services firms, on the back of its distinct business model and the rapid growth of the US startup ecosystem.
With the launch of the new government, some have argued that Korea should actively embrace the business model of SVB Financial Group to create a higher-quality startup supporting ecosystem. Building upon SVB’s model, private financial services firms need to form a financial partnership with the startup ecosystem through a nurturing service for non-listed startups, equity investment, venture debt, and company analysis. However, their efforts may not be enough for the SVB model to take hold in Korea, probably due to the discrepancy in the startup ecosystem between Korea and the US. In Korea, innovative firms are highly dependent on government-sponsored financing, such as credit guarantee, and IP finance and the secondary market have not been facilitated. For the successful introduction of SVB’s model, financial authorities should gradually reduce startups’ reliance on government-sponsored financing and cultivate various venture investment schemes to encourage the private sector to supply more risk capital. Furthermore, it is necessary to facilitate IP finance, permit the issuance of independent warrants that meet certain requirements, and reform sales-related regulations to ensure that the secondary market and the high-yield corporate bond market perform well in Korea.