SPD Silicon Valley Bank (SSVB) is a joint venture between Shanghai Pudong Development Bank and US-based Silicon Valley Bank that serves the technology and innovation start-ups in China.
David A. Jones, President of Silicon Valley Bank Asia and SSVB, the first Sino-US joint banking venture, moved to Shanghai in 2013 to guide the bank in its dealings with innovation companies of all sizes as well as help build the innovation ecosystem in China.
Here, in an exclusive interview with Shanghai Daily, Jones spells out the bank’s unique vision and what exactly makes an innovation company.
Q: SSVB aims to create an innovation ecosystem. Could you please elaborate on this?
A: We usually bring CEOs with similar issues together in a start-ups community, where the “big brothers” are delighted to share their experience and expertise with the younger entrepreneurs so that they can avoid making mistakes. I was once an entrepreneur and I know what failure tastes like.
CEOs with similar issues do not have to come from the same industry. CEOs of the start-ups need advice and they should be able to balance out different ideas.
You see, our so-called “innovation ecosystem” is much more like a “solutions pool” actually. In this ecosystem, people are really very giving and beneficiaries have great appreciation for such kind of sharing.
Q: Based on your experience, what kind of help and resources do the innovation companies need most?
A: Capital is the least thing they need, which does not mean capital is not important. At SSVB, we bring different pieces together and introduce the target venture capital, private equities or other professionals to those companies. That is what we are trying to do here in China.
Our ability goes beyond lending loans to them. We put the right information in front of the right people and build up the thought leadership. By leveraging our own network in the innovation ecosystem, we make endeavors to help start-ups grow and increase their probability of success.
Q: And how does SSVB evaluate the potential of those enterprises?
A: Profitability is not the only indicator. Many of our clients are very young pre-profit companies in their early stages. We would like to wait some time before they begin to make profit. This is our “defining moments” for those companies.
We have patience with disruptive innovation companies like Twitter. But this process depends on the type of the company and its industry.
We attach great importance to the “value creation variables” of the innovation enterprises. For example, the number of sales and re-sales is a key variable or metric for the e-commerce start-ups. Companies have to be the first mover and stick to their core business and keep on re-innovating.
Q: SSVB strives to become the most sought-after bank for innovators, enterprises and investors. What kind of strategies you have undertaken to meet this target and what has been the experience so far?
A: Unlike other foreign investors or foreign bases of other banks who mainly serve foreign companies, our target is Chinese innovation enterprises and they comprise 99 percent of our clients. So we have to become familiar with local investors, local incubators, local people and service providers for those companies.
We are the only bank that focuses on innovation. And there is no end to innovation.
We do a lot of face-to-face communication with entrepreneurs. And it takes time to differentiate.
Q: How do you translate your overseas experience in China? What kinds of difficulties have you met?
A: I would not use the word “problem.” I would say we had several things to deal with. We waited three years to get the yuan license and (since then) our business has grown well in the past couple of years.
You see, we are building an expanding local team. In our business model, we need a little bit understanding of the Silicon Valley, and we need a lot of understanding of the way local people think and do. That is why we are planning to hire almost 90 percent of our employees locally.
In my vision, there is no need for the staff to take time doing translations to report to me. And our business agreements here are all in Chinese, as our local clients can understand the implications better in Mandarin than English.
In the US, people would feel comfortable if there is empty space on the official website of a company. But here in China, empty space gives the impression of “lack of products to sell.” Therefore, we make relevant changes to our website accordingly.
As I am here, and we intend to be here forever, I have to be more like the Chinese. You have to adapt. As we know, some American giants which enjoyed huge success in America, do not reap the same in China. So we have to adapt and we have succeeded here by doing business in a more Chinese way.
Q: Could you please walk me through the typical process once a start-up approaches you?
A: When I meet the CEOs of the start-ups, all I try to figure out is whether their companies are innovative or old economies. We will hear their description of their business models, and then make a judgment of whether it meets our criteria for innovation or not.
Before lending to them, I will talk about their latest investment, ask them how much money they have raised and what kinds of issues they have met.
We only focus on the innovative companies and we do not bet on any other industries.
However, we do meet people who are not really entrepreneurs all the time. Here I would like to share one example with you. Recently, I spent a nice morning with a company which makes electric motors. I asked its CEO to take me on a tour around its facilities. When I learned that they had modified their motors for 25 years, I realized that this company could not be called an innovative company by any means. There is no such thing as 25 years of innovation.
The great thing in China now is that it has many, many innovations and the bad thing is that not all of those on the list of innovative companies are real innovators.
Q: Would you mind sharing with us one of the most successful client cases at SSVB?
A: Sure. Zhaogang.com, a Shanghai-headquartered steel e-commerce company set up in 2012, has become the largest steel retailer in China with its one-stop supply chain service. Our collaboration with this company began five years ago, when it was just a start-up with a team of 30 or 40 people. We felt a strong sense of commitment from their staff to innovating the business model of the steel industry and we are proud to be the first partner to provide the company offshore banking service.
Q: What is your evaluation of the current business and funding environment for the entrepreneurs? Any predictions for 2018?
A: In my vision, there could never be a better time in China for innovations. I learned from a recent report that there has been a total of US$10.8 billion equivalent investment on Chinese innovative companies during the first half of 2017.
And I am a firm believer that this trend will carry on throughout in 2018 as the government has rolled out a slew of preferential policies to boost the innovative economy.