Veteran of Venture Arena Is Eyeing Regional Expansion.

SILICON Valley Bank, the granddaddy of banks financing emerging companies, has moved aggressively into the L.A. market.

After establishing a Southern California beachhead in Newport Beach 10 years ago, the 17-year-old Santa Clara-based bank has opened three additional offices here in the last two years, including facilities in West Los Angeles and Westlake Village. It now has a total of 60 employees scouring the L.A. region for hot startups and emerging-growth companies to finance.

What's more, Silicon Valley Bank officials say they plan to open up at least a couple more offices in Southern California within the next 18 months.

"We've seen Southern California grow as a venture capital center," said Terry Bess, executive vice president and regional manager for Silicon Valley Bank. "There is now more money being raised and more venture funds dedicated solely to Southern California than ever before."

Unlike other banks now turning their eyes toward emerging technology companies, Silicon Valley Bank has always been a boutique financial institution dedicated primarily to financing technology startups and emerging companies. Indeed, the bank pioneered the technique of accepting warrants as part of its loan deals.

In the process, the bank has built up an extensive network for finding these companies, usually working in tandem with venture capital funds.

"They've got the longest track record of investing side-by-side with -- and investing in -- venture capital firms," said Paul Nadel, managing partner of East-West Venture Group in Westwood.

Until recently, though, most of the bank's efforts had been focused on its namesake, Silicon Valley, where it built up its dominance in finding and financing emerging-growth companies. Indeed, last week, Silicon Valley Bank announced it had raised $160 million from outside investors for two venture capital funds.

"They have a 90 percent market share when it comes to lending to emerging companies," said Jay Tejera, an analyst with Ragen MacKenzie Inc. in Seattle.

Analyzing track records

Silicon Valley Bank achieved that dominance by working closely with venture capital firms, Tejera said.

"When they check out whether a company should get financing, they look not at the company' s own track record -- which is hard to do for a startup -- but at the venture capital firm's track record with similar companies," he said.

"Everything we do is built around how we can help the companies financed by venture capital firms to execute faster and have a more successful outcome," said Aaron Gershenberg, senior vice president of Silicon Valley Bank's venture capital group.

That's the strategy the bank is using in the L.A. area, where regional manager Bess said the bank has invested in 11 regional venture capital funds, including L.A.-based Allegis Capital/Media Technology Ventures. Two of those funds, East-West and Trident Capital Inc., have several deals in which Silicon Valley Bank has played a role.

"Sometimes we bring a company that needs an equipment loan to their attention, and other times they bring a company to our attention," Trident general partner and founder Rockwell Schnabel said. The companies tend to be in Trident's areas of focus: information technology, telecommunications and business services.

In addition, Schnabel said, Silicon Valley Bank has invested directly in several of Trident's venture capital funds. Trident has four funds in place and is raising its fifth fund; they total more than $1 billion.

East-West managing partner Nadel said that he started working with Silicon Valley Bank in the mid-1980s, shortly after the bank was founded. The partnership has intensified now that the bank has opened offices in the L.A. area, he said.

Emerging competition

Companywide, Silicon Valley Bank has invested in 177 venture capital funds, most of those still in the Silicon Valley area, according to Joe Morford, an analyst with Dam Ruscher Wessels in San Francisco. It has also invested directly in about 45 companies, with most of those investments being made recently, he added.

While Silicon Valley Bank has honed its skill in finding emerging-growth companies through venture capital funds, one challenge the bank faces is holding on to those companies.

"Once a company goes public or gets acquired, they typically move beyond Silicon Valley Bank to a bigger bank," Morford said. "Silicon Valley Bank then recycles its resources back to newer companies."

However, such concerns have yet to show up in Silicon Valley Bank's stock price, which rocketed to an all-time high of $65 a share on Sept. 14, almost six times the $11 a share price of a year ago. As of last week, it had fallen back to $54 a share, still five times the year-ago price.