SVB Q&A: Time to Rationalize and Reset Plans

The tail end of Q1 was a roller coaster ride. Below, Brenda Santoro provides a deep dive into what we’re seeing. With insight from Katherine Andersen, head of life science and healthcare relationship management, Santoro weighs in on how the healthcare industry is mobilizing to create solutions for COVID-19.

What is it like to be on the front lines at SVB given its client base?

While the suddenness and depth of the global COVID-19 crisis is unmatched, SVB remains focused on the health and safety of our employees and serving our clients seamlessly throughout this volatile time. What matters to us is being a partner to our clients, listening to their needs and being flexible with our solutions, both with scalable solutions and on a case-by-case basis. We are strong advocates for innovators; we work with the National Venture Capital Association, TechNet and others to ensure startups can access critical government programs. Because of our strong financial position, we are able to help ease some of the financial pressures our clients are facing and continue to invest for future growth. 

How are you advising companies to withstand these turbulent times?

Innovators are flexible and adaptable by nature, and none of us can really know how this cycle will turn out. Companies should develop a base-case scenario to calculate their cash-need projections as best they can. In consultation with their investors and financial and legal partners, companies should look for ways to extend their runway, defer expenses and act quickly to evaluate—and apply for—relief programs offered by their financial partners and the government.

During COVID, SVB offered a venture debt principal deferral program intended to defer principal payments for six months for venture debt borrowers across our global client base.

Given the bank’s long experience in up and down cycles, what observations can you make at this point?

There is nothing conventional about what we’re going through, so it is hard to generalize. From a macro view, we’re coming off one of the most liquid decades in history when you look at how much has been raised by companies and VC and PE firms.

While the innovation ecosystem in aggregate was well capitalized going into this market contraction, the quick onset of this financial event and near-halt of capital flows are prompting everyone to rationalize business expenses and rethink 2020 and beyond. There remains a lot of capital to be deployed, but there will likely be a period of price discovery before we see capital flow again.

From a global perspective, how might this shift the innovation economy?

The financial distress is global, and likely will lead to a shift in how and where companies do business and fast-track some changes that were already underway. There are some trends to watch:

• Tariffs had already pushed many companies to locate other sources for products. COVID-19 is accelerating this and will prompt many companies to reevaluate their supply chains with the goal of diversifying risk to achieve more stable and cost-effective solutions, including an increasing reliance on US-based sources. Supply chains are highly complex, interconnected networks and changes may occur more slowly for multinational companies, but smaller companies may be able to shift more quickly.
  
  

• What’s remarkable is how quickly these innovators—from tech and healthcare companies to the worlds of government, academia, and philanthropy—are collaborating to advance medical treatments and healthcare delivery to address the immediate challenge. When the crisis ends, we can apply these new collaboration models to other tough problems. Leapfrogging to digital has already occurred, especially in emerging markets and populations that may be among the hardest hit by the pandemic impact. Mobile payments and instant microloans, for example, have the potential to extend financial inclusion to those who need it most.
  
  

• Trade will certainly be affected for a period of time, but ultimately companies will want to urgently get back to business, working to source and sell globally and ultimately serve their clients worldwide. Global connections will grow not diminish.

What pandemic-related impacts are life science and healthcare companies and investors seeing? 

It appears investors are still deploying capital, but we expect we will continue to see a major flight to quality over the coming months. We’re also operating in a selective market where good companies will need to be realistic on valuation. The short of it is the worst is still ahead. And the biggest unknown driving all of this volatility is how long the US will be shut down.

We’re already seeing disruptions to drug development and delays with clinical trials.  Many companies are delaying or suspending clinical trials and allocating resources to other priorities.  Every step of the drug development process is being affected—from trial recruitment to the supply chain. The longer we’re in this current environment with stay-at-home orders, the higher the potential for significant disruption with lasting impacts.  Doctors simply can’t prioritize new treatments for their patients, so instead, they’re keeping with the status quo. We have already seen a huge ramp in demand for telemedicine and virtual care. We expect to continue to see growth in this area.

Elective procedures have become a four-letter word in this environment. While there’s currently a general ban on elective procedures, there also isn’t much clarity yet on how these companies can come back. Physician practice companies will clearly be hit with a steep drop in elective visits. As soon as doctors are allowed to do surgeries again, they’re going to be working overtime in an attempt to recoup lost income. 

Overall, we expect the next couple of quarters will be challenging. We were left at the beginning of March with a number of private companies who were looking to go public.  Now, the vast majority are on hold, yet still need capital. As a result, significant consolidation across healthcare is possible.

Many healthcare companies have global partners, investors, licensing agreements and R&D operations. What global opportunities and challenges do you see ahead?   

For those US companies with overseas manufacturing in Europe or elsewhere, it’s expected that there will be an extended period of disruption. Even if businesses are open, getting people to tend to their manufacturing jobs has been difficult, which creates significant supply challenges. Many companies are unable to make products or imports.

Many of us have been looking to China to help determine what might be on the horizon.  In spite of businesses and schools being reopened, consumers in China are not back to normal. Notably, the US is more consumer-led than China, which has a heavy manufacturing base. We could very well have an even longer road ahead in the US.

What other COVID-19 responses have you seen that may have a long-lasting impact? 

The urgency to find solutions now will set the stage for future rapid innovation. We’re seeing real-time pivots daily across the tech landscape: life science firms globally crowdsourcing to find cures, high-tech manufacturers retooling to make life-saving equipment and shared-economy services moving to help students and seniors. Consider how our daily routines now include telemedicine, distance learning and new habits of professional and personal communications. 

We also have seen an outpouring of charitable giving. SVB has developed the COVID-19 Global Impact & Innovation Fund in partnership with Founders Pledge, an innovative global giving platform for founders and entrepreneurs. Working side-by-side with our partners, investors, and innovators, SVB recognizes that together our connected community is stronger and able to get resources more quickly to high-impact organizations. SVB has made an initial investment of $1 million to this fund. If you have the desire and the means, we encourage you to give to the relief fund or an organization in your community working for the greater good.

This article appeared in the Pitchbook-NVCA Venture Monitor report. Read other articles and learn more about our partnership.