Probability of Success

Supporting an entrepreneurial ecosystem with Silicon Valley Bank

By Bruce Wallace, Retired Chief Digital Officer/COO, Silicon Valley Bank | In collaboration with Jim Smith, Partner, Blue Dun

Silicon Valley Bank (SVB) has supported innovative companies and their investors with financial services and expertise since its founding more than 30 years ago. Today, SVB works with more than half of U.S. venture-capital-backed companies. It has more than $48 billion in assets and 2,300 employees in innovation hubs around the world.

Bruce Wallace, then the Chief Digital Officer of SVB, recognized the challenges FinTech startups face when it comes to building out a robust product. The rising cost of resources and infrastructure, including the cost of data, create a high barrier to entry for FinTech entrepreneurs. As a steadfast proponent of financial innovation, SVB signed on as a founding sponsor of FinTech Sandbox in 2014.

Bruce recently announced his retirement from day-to-day responsibilities at SVB and a new role as Strategic Advisor to the President’s Office. The Sandbox caught up with him to gain his perspective on innovation in financial services and for insight into making startup-incumbent partnerships successful.

Q. Bruce, what is your approach to innovation at SVB?

A. Like many other organizations, we have a multifaceted approach. First, we have built a culture with corporate values that inspire innovative thinking in everything we do. We have an expression commonly used internally — do different — which is really a mindset to always be thinking of new and innovative ways to continue to grow and improve.

Secondly, we have an R&D function, consistent with many other organizations, where we are assessing and experimenting with new technologies, new business concepts, etc. One of the core principles of our R&D is a stage gate approach where we try to cycle through ideas, concepts, and prototypes quickly and ensure these are very short-term gates. Rapid ideation is also an important concept we focus on.

Lastly, we have the fortunate benefit of working day to day with a large percentage of the venture-backed tech community and some really brilliant and talented entrepreneurs. We view these too as important relationships to help us become more innovative by consistently learning from our clients. In some cases, we have also launched co-dev efforts to build something together.

Q. How does your sponsorship of FinTech Sandbox, with its focus on data, fit within the larger strategy?

A. We believe in the innovation ecosystem, it’s why we exist and our core mission is to support the innovation economy. We consistently look at programs and organizations that are helping to drive more innovation and helping the entrepreneurial community. We felt that the FinTech Sandbox was a great program that helps our overall mission of helping entrepreneurs and their investors increase their probability of success.

Q. What has your sponsorship experience been like?

A. Great! We’ve got to work with some amazing founders and hopefully have helped the program deliver value back to them.

Q. Tell me about some of your other innovation initiatives.

A. Our internal innovation efforts are predominantly focused on how to improve the value we deliver to our clients. Like many other organizations, we certainly have our fair share on innovation initiatives focused on streamlining our internal processes, systems, infrastructure, etc., but most of what we focus on is where we can add more value to helping our clients and the innovation ecosystem be successful.

Q. There appear to be a healthy group of FinTechs in each Commerce.Innovated class. Who is this accelerator designed for, and do you sponsor any other accelerators?

A. We specifically called this ‘commerce’ Innovated because we don’t want it solely confined to how the industry defines FinTech. Our focus is on startups that are looking to introduce new products and services that enhance the commerce experience. Could be P2P, could be B2C, could be B2B. It’s where there’s an opportunity to make those commerce/transaction experiences more frictionless, adding qualitative value to either or both parties involved, improving the security, enhancing the value, etc.

Our focus is primarily on how to help them operationalize their product/business model. The most important element of the program is a concept we call ‘the golden phone’. The idea is to help the startup get to the right person as fast as possible to get the information/answer/support that they need. Unfortunately, startups can spend a lot of wasted cycles trying to hunt down the right person to help them with something, we try to help accelerate that as much as possible and shave hours/days/weeks off their go to market cycle time.

Q. Your customer base includes a lot of innovative technology startups. Does that mean they have higher expectations for your ability to use technology to meet their banking needs?

A. Although I think we obviously have some of the most sophisticated technology clients, I think the reality is that the bar has been raised across the board for the banking industry. UX expectations are being set by the broader tech/software community. As a consumer, you experience interactions with hundreds of web sites, mobile apps, eCommerce sites, etc. and that’s creating your personal expectation of a digital experience.

Q. What advice do you have for early-stage companies trying to sell products or services to traditional financial institutions?

A. First and foremost, acknowledge right up front that this is one of the toughest verticals to sell to. Secondly, know who the decision makers are and get in front of them. Many times, I see startups engaged with bank representatives that actually are not the final decision maker.

The first question I would ask when I meet with a bank is “who ultimately has the authority to approve this” and spend your energy developing that relationship.

A few other important factors are technical implementation. If it’s something that requires integration to the core, the digital/online experience, or any critical part of the bank’s infrastructure, your odds of success will go down dramatically. You now have to get prioritized on an enterprise release queue and that could be a major roadblock.

Lastly, give some serious consideration to a strategic partner who has proven success and existing traction with financial institutions. There are large public FinTech companies who have thousands of banks as clients. They have decades of proven experience selling to this sector and already have strong relationships. At a minimum, closely assessing different partnering models with one of them should always be a priority.

Q. Financial firms are highly likely to have long-term contracts with existing software vendors. What can startups do to make it easier for these established firms to become clients?

A. Make the business case and economics compelling. I know that sounds basic, but surprisingly, it’s not always top of mind for the startups. They are excited about their product, have great testimonials from beta clients, and sometimes believes that’s enough to convince a bank — it’s not.

In the very first conversation with a bank, you need to put a pro forma financial model in front of them that is compelling, i.e. here’s how we can reduce your client acquisition costs by 80%, here’s how we can reduce your operating expenses by 90%, here’s how we can improve your product profitability by 5X.

Banks hear a lot of pitches, it needs to be the most compelling opportunity that they have heard in the last month, if you really want prioritization from them.

Q. How many branches does SVB have and what does that tell us about the future of branch banking?

A. We don’t have a branch banking model. We have a handful of branches near our headquarters for client interactions, but 99% of all our banking activity across the US and internationally is done digitally/virtually. We’ve built our operating model so that we have no reliance upon physical branches to onboard clients, allow them to transact, and to service them.

There are totally branchless models in the market today and I think you’re seeing a continuous movement by the banks to reduce their overall branches. Do I personally think that they’ll go away all together? No. There are definitely use cases, just as there’s a great use case for Apple Stores, but I think the future layout will look radically different.

Q. What’s happening with open banking in the U.S.?

A. I still believe this is in its nascent stage and there’s a lot of learning and market testing to be done.