HSBC Expands Their Startup Services

Sunita Patel of HSBC - Podcast Transcript

Scott:	Welcome to a Thousand Friends podcast with Scott Orn of Kruze Consulting, and today my very special guest is Sunita Patel of HSBC. Welcome, Sunita.
Sunita:	Thank you, Scott, for having me.
Scott:	We’ve been friends for a very long time. We worked together in the venture net world. We used to syndicate deals together when I was at Lighthouse and you were at Comerica, and I’ve gotten to know you and you’re just a pleasure to talk to you. Super smart lady. And I wanted to have you on the podcast so we could tell the HSBC story.
Sunita:	Well, thank you, Scott, and it definitely a story that I love sharing, and so again, thank you for the opportunity to do this on your forum.
Scott:	My pleasure. Well, maybe just start by retracing your career a little bit and how you got to HSBC and what you folks are doing there.
Sunita:	Yeah, pretty simple career. Actually, my first job was with SVB, and I was there for five years and then left there with a few folks to start a competitor to SVB. And so that’s where Comerica came into play. And so was there at Comerica for 23 years building out the similar practice competing with SVB. And then in 2020 decided to rejoin SVB and took on a role to oversee the investor coverage and business development part of the organization there. And then we all know what happened last March, and so when SVB collapsed last March, there were a number of banks that saw an opportunity to think about getting into the space of banking innovation companies. And that’s where HSBC comes into play. If you remember that same weekend that SVB collapsed, HSBC acquired SVB UK, and with that came not only the portfolio, but close to 700 of our former colleagues from SVB. And a month later they decided that to do this right, we also need to be in the US as well. And so that came with about 50 of us that came over a month later. And so now with that, we’ve got a team in Israel that our former colleagues from SVB are there and in Hong Kong. And so collectively there’s probably north of 800 of us former SVB’ers that are here at HSBC and overall focused on the innovation space. I’d say we’re going to get close to a thousand by the end of the year.
Scott:	Wow, incredible. I mean, I know that SVB crisis was super painful for everybody including you. I mean, it was a tough time, but it’s really exciting that you landed and the rest of those 800 people landed on their feet at HSBC. We talked a couple weeks ago, you had some, I don’t know, a very strong number of term sheets or deals you’ve done. You folks have been super active in the marketplace.
Sunita:	Yeah. We have. If you think about the amount of experience that we’ve bought over, right-
Scott:	Yeah.
Sunita:	… this very experienced team, we’re very much focused on this segment of the market. Everything from seed onwards, right? HSBC already had a portfolio of late stage, and so what they weren’t focused on was the very early stage. And so that’s what we bring to the table here. Just to take a step back, Scott, when the collapse happened of SVB and the majority of those companies gravitated towards other big banks because they were all looking for stability given what happened. Right after a few weeks or a month or two after they moved on to some of the bigger banks. They started to get some frustration around some of the service that they were getting from the big banks or they weren’t getting the attention from some of the big banks. When we got the opportunity to do this at HSBC, we took that into consideration is that one is stability and the size of the balance sheet matter to our clients because nobody wants to go through what we went through last March. Right? That was really important. And we have that with HSBC, right? It’s a $3 trillion asset size bank, so we have that safety and soundness. But two, more importantly was they also wanted the service. Right? They want the high touch service that startups were accustomed to. We wanted to make sure that we built that. And so, for that reason, we brought the right people so that we built that model around servicing our clients in the same manner that you were accustomed to.
Scott:	Yeah. Also those relationships, the relationships that your team has with the venture capital community, the entrepreneurs, the accounting firm, tax firms like us, there’s a shorthand that you can just do that everyone knows, and it’s why we can work together so easily because I just know how you think, you know how we think, and that’s multiplied by a thousand VC firms and entrepreneurs. I think that’s maybe the most valuable thing out of everything. It’s not the know-how, but it’s the relationship, especially in the lending aspect of banking. The startups and the VCs need to know that you’re going to be there in tough times and be creative about restructuring or helping them out in a tough situation, and you need them to help you win deals. And so, I think those relationships are just crazy valuable.
Sunita:	Yeah, no, I mean Scott, that’s frankly the foundation of our business. Right? The relationships are the foundation of how we built this business and how we continue to build it, right, and foster. I mean, to your point, right, it’s how we get into an opportunity to work with a company, and it’s how we continue to manage through those relationships and help those companies through tough times as well. Right? One thing for sure with these startups is that they are going to go through ups and downs, and you want to be with somebody that you trust that is going to be there through those challenging times. Everyone can be there when things are going great. Are you going to be there when things aren’t going great? And that’s really what we take such pride in is that we all come with that background of knowing that we have to be there during those tough times.
Scott:	Totally agree. And when we talked maybe two weeks ago or a month ago, you made the point that there was a lot of continuity because enough people came over. You all had worked together and not just on the relationship side, but on the credit side because I think… I don’t know if everyone quite understands the flow, but a relationship manager can be at a great company, but that deal has to go through credit, and you don’t want a credit approval, and you don’t want the relationship managers out there shooting term sheets like crazy if they’re bad deals. And you also don’t want the credit people being short-sighted or not quite understanding why a company’s actually a good risk and squashing deals that are issued. Maybe talk about that, how the two sides of the houses work together because I think that’s really valuable too.
Sunita:	Yeah, it is. One can’t exist without the other, right? And so having a good credit partner in this is so critical, and that’s the reason why my colleague who was a 30 plus year veteran at SVB and ran credit over there and basically probably built a lot of the policies that exist that existed there, he is now at HSBC doing the same thing. He’s building out the policies. He’s the one that’s making sure that we do have the right guidance, the right guidelines, right? And we want to make sure that we do this. We want to make sure that one, we are giving the right terms, the right credit facilities out there, but at the same time making sure that we’re doing right by the bank as well. And so all of those processes have been stood up. We’ve been here now almost a year. And so, the first year was very much about establishing all of those processes we have been, and we’ve been in the market, and we’ve been very active. By far, there’s a lot of buzz around us and because there are many of us here, and so the number and the volume is significantly high.
Scott:	Yeah. I totally get that. And it’s also worth mentioning because sometimes there was a lot of headlines, and people didn’t quite understand what was happening at SVB, but it wasn’t the credit quality of the portfolio. It was mortgage-backed security buying, which has nothing to do with lending to startups or banking startups which got the company in trouble. Those credit policies that you’re standing up [inaudible 00:10:03] and the 30 years of experience of [inaudible 00:10:06] credit, those are actually what kept SVB out of trouble for a very long time. The business model was very sound. The lending methodology is very sound. It was just the way the company invested its assets was what got them in trouble, not lending to startups.
Sunita:	Yeah, absolutely, Scott. And that is the very reason why HSBC decided to buy UK SVB when they did. It is the very reason why they decided to build this business in the US as well, right, because it is a very sound business model. And to your point, it was nothing to do with the business model or credit that bought down SVB, which is why I think it’s still a very attractive business for the banks to lend to
Scott:	Yeah. Big time. And then maybe talk about your activity level or what you’re looking for out there, because sometimes people listen to these and they don’t… Venture debt’s kind of an interesting tool. Startup founders don’t always know exactly how it works, but maybe the ideal situation and then what you folks are doing in the market right now.
Sunita:	Yeah, it’s interesting because what happened last year with SVB at its collapse happened at a time where we were also going through some market dynamics. Right? The amount of equity capital that’s coming into the market has slowed down significantly as well. Right? It was just a perfect storm, right? And so, what we found is the first couple of months, or at least a quarter after the March event, things have really slowed down in terms of the volume of venture debt. In fact, I think prior to 2023, I think the average volume of venture debt, and we spoke about this earlier, right, Scott, I think it was somewhere around 30 billion I think it was.
Scott:	Huge.
Sunita:	Right? It was huge. And then last year it was significantly down to 14 billion, 13 billion.
Scott:	Wow.
Sunita:	And I think they’re thinking that this year could be somewhere around 14 to 15 billion in terms of total commitments of venture debt, which is still significantly down than the prior four years to last year. And so that gives you a little context in terms of just how we really… The venture debt follows the equity markets as well. Right? It’s very much in correlation with how much capital is coming in. One thing is for sure is the incident last March did create an opportunity to have more options in the market, right, for our startups.
Scott:	Yeah.
Sunita:	There’s more players in the market, there’s no dominant player. Having said that, I think in a few years you’re going to have to see one or two, three maybe that are going to be the clear winners in this space. Right? But for right now it is giving the startups a little bit more of an opportunity to have competitors. But I think it all comes down to… I think one is, again, we all have our strengths that we have to leverage. And for us, we just know based on our experience that it does matter for people that they have a very solid institution backing them too, that they have people that understand this business because this is really a… For banks, it’s a very high risk portfolio. And so, you want to make sure that you have people that understand this business and are there, like I said, when things aren’t always going well. But in terms f volume, when it comes to banking, [inaudible 00:14:09] bank companies very early on. But when it comes to debt, we’re typically looking at, we’ll do some seed, but majority of where we’re coming in is series A and above is where majority of our venture debt comes in play. And then we’re doing obviously more than just venture debt. We’re obviously doing lines of credit, term loans, right, and then beyond that on the later stage as well.
Scott:	Yeah, I don’t really recommend venture debt for seed stage companies anyways. It’s just so early.
Sunita:	Yeah.
Scott:	The amount of equity capital raised is so little. It’s just a little tough. But series A, that makes tons of sense, and that’s historically what your team has done very, very well anyways. There’s also, when you’re talking about… I really think people should really think about that strength of the balance sheet, what you’re talking about, because there’s still some other crises that’ll probably happen around commercial real estate. And I don’t want to be a negative Nancy here, but there’s some time bombs probably out there on some banks’ balance sheets around commercial real estate in the United States especially. And you just don’t want with none of us, especially us, we had 550 clients with SVB when the crisis hit. It was really, really tough on us. We were collateral damage too. And so, if you’re a startup and you’re looking for a banking partner, just pick someone that’s really, really strong who’s going to be able to weather a downturn if there is a downturn in commercial real estate, and loans start going bad there too. It’s never fun to pull up Yahoo Finance and see the bank you’re working with down 25% in a day. I think HSBC is very, very well positioned, and they’re smart. They courted your team and bought the asset out of the UK, and you guys have scale. That’s the other thing about it, is there’s a real benefit to having scale and being able to see what’s going on in the marketplace and see, okay, these venture capital funds are doing really well. They’re going to be able to raise more funding. They’re strong. These folks are struggling over here, or certain portfolio. You just kind of connect the dots in a way through the gossip and through the relationship building that actually benefits the startup in a way. Does that make sense?
Sunita:	It does. And yeah, Scott, you brought up a good point, right? One is our ability to scale with companies, right, just that series A, right?
Scott:	Yeah.
Sunita:	It’s going beyond that as these companies continue to grow, right? And we know that companies are staying private longer as well, right? And being able to be there through the life stage of that company is so important. And now we have that capability. Right? One of the good things that came out of all of this is that it did give us an option to think about how should we be doing this if we had to do this again, right? And this is exactly where HSBC has been a great partner for the innovation space because one is our ability to scale. But two, again, Scott, the other point I’d like to make is like HSBC has such a great platform for global companies.
Scott:	Good point.
Sunita:	And our startups are going global sooner, right, and faster than ever before. And so having the ability to be able to serve that company globally from an earlier standpoint is something we never had. And so, we get to do that as well. And then three to your point, right, is if I think about what none of us ever want to go through, right, having a diverse portfolio, having a bank that is diverse that does not have all their eggs in one basket is really a comfort for all of us. Right? It should be a comfort for our companies. It should be a comfort for our investors, and it should be a comfort for the employees here, right, which knowing that we do have one diverse balance sheet, and then two, even for our clients, right, if you’re with a smaller bank, you do think about the possibility of what happened last year. And so you want to diversify your cash. At least when you’re with a big stable bank, right, you don’t have to really worry about so much of that because you have a bank that’s diversified in itself.
Scott:	I totally agree with everything you’re saying. It makes so much sense. I’m just excited for you personally too. I can just tell the enthusiasm in your voice. And even before we turned on the recorder, we were talking about a deal that we’re working with, and I can see the fire in your eyes, which is really exciting. Kudos to you, kudos to the team. Maybe we’ll wrap it up here, but maybe just how do people reach out? How do they get in touch If they’re a startup and they’re a VC and they’re like, “Hey, I need a new relationship in the lending and banking space for my startups,” how do they get in touch with you?
Sunita:	Well, Scott, they can obviously reach out to you as well, and you can then give them my contact information. That might be the easiest way. And I’m in LinkedIn, and obviously I can share some information on your LinkedIn as well with my contact information. But Scott, you and I have been in this a long time. We’ve seen every movie, other than the fact that a bank collapsed, that was my first time seeing that one. But other than that, we’ve seen every movie. I do think experience matters. It matters in this, it matters on your end. It matters on our end, and we know that. And so, know that we want to be a great partner to you, to all the startups and the innovation and the investors. Right? And one thing I know we haven’t covered, but we are also banking the funds themselves as well.
Scott:	Oh nice.
Sunita:	Not only [inaudible 00:19:59] companies, but yes, we’re also not only banking the funds, but we’re also providing capital call lines, management lines, all of that to the funds as well. I am excited. I think it’s a great time for us to be doing this. I also think that some of the best companies come out of these times, right, and so look forward to the next set of startups.
Scott:	I love it. Congrats. Great that you’re doing the capital call loans and the fund banking too. That’s super important, and I’m excited for you. Well, thank you so much for coming by. Really appreciate it. Great catching up too. Great to see you, Sunita.
Sunita:	Thanks, Scott.
Scott:	All right.

HSBC Expands Their Startup Services

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