HSBC aims $200 million at Aussie start-ups

HSBC already had a large customer base among ASX-listed tech companies with global operations, such as Siteminder, and is looking to expand into private companies with the new venture debt offering.

In March, HSBC acquired Silicon Valley Bank’s UK business for £1. It has since been rebranded as HSBC Innovation Banking, but has been launched only in the UK, US, Hong Kong and Israel so far.

‘We’re here to assess risk’

Silicon Valley Bank was traditionally the tech sector’s favourite lender, but its collapse in March has left the door open for new players to enter the market – if they have the appetite to back the high-risk asset class.

Alan Watters, HSBC Australia’s tech sector lead, said he had been getting to know the local tech scene for the past two years, including founders, chief financial officers and VC firms.

“Based on the conversations we’ve been having with all the various participants in the ecosystem, there is definitely a place for a global bank of the calibre of HSBC to come into the market,” Mr Watters said.

“We’re a bank, we’re here to assess risk. We look at the founders, the business model, the market opportunity and how they can execute into that market.”

The bank didn’t disclose interest rates applied to its venture debt products, but said the pricing was competitive against the other providers in the market.

Venture debt is still relatively nascent in the Australian market, led by players such as VC firm OneVentures which has committed more than $100 million in venture debt to more than 20 companies.

Joe Patrick, a former banker and the founder of advisory firm Astral Ventures, estimated venture debt represents about 2 per cent to 4 per cent of total venture funding in Australia, compared to 15 per cent to 20 per cent of later-stage funding in the United States.

He said venture loans typically carried low double-digit percentage interest rates.

“Key benefits are that it enables companies to accelerate growth without dilution or having to set a valuation,” Mr Patrick said.

“I’ve seen it work well when used in conjunction with a financing round to reduce dilution and reduce the cost of capital.”

OneVentures partner Nick Gainsley said Australian founders and VCs took a relatively conservative view of debt financing, and his firm spent a lot of time educating the market on what it calls “growth credit”.

“Banks typically do not provide growth credit due to differing internal lending criteria. Where they do, they tend to be more structured and restrictive on companies, and normally require the borrower to switch its banking relationship,” he said.

Even if interest rates kept rising, Mr Gainsley said debt was “definitely” still cheaper than equity.

“Remember, rising interest rates have led to declining valuation multiples, making equity even more expensive and dilutive.”