Startup Stars

Silicon Valley Bank: The bank for startups

October 22, 2012: 5:00 AM ET

The boutique financial institution caters to tech entrepreneurs and high-end winemakers with a long-running strategy: Bank like a venture capitalist.

By Richard McGill Murphy, contributor

FORTUNE -- In an age of "too big to fail" financial supermarkets, Silicon Valley Bank is relatively small and specialized, with a customer base dominated by tech and biotech growth companies, along with high-end winemakers. "We start working with companies very early on," says CEO Greg Becker.

In addition to taking deposits and making loans, Silicon Valley Bank operates venture capital and private equity divisions that sometimes invest in the firm's commercial banking clients. "Over the years they've built strong relationships with VCs and entrepreneurs," says Morningstar analyst Gaston Ceron. "They're in a good position to use those relationships to get customers."

Unlike many banks, Silicon Valley Bank has had limited exposure to the real estate market in recent years. That's one reason why its loan portfolio grew nicely coming out of the downturn. Last year the firm's loan balance rose 26% over 2010, and the bank's equity investments also performed well.

MORE: Does VC (fund size) matter?

"They know venture-backed companies very well," says Sam Blackman, CEO of Elemental Technologies, an Oregon-based developer of video delivery software that keeps its VC stash at Silicon Valley Bank. "Most big banks have no idea how to value intellectual capital."

Silicon Valley Bank's focus on the volatile startup market can also be a liability, as seen in 2009 when loan losses reached an uncomfortable 2.6% of all loans. But with offices in most U.S. tech clusters along with overseas markets like India and China, the bank seems poised to outgrow its stodgier competitors going forward.

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