Amy: Hi, I'm Amy Thomas, a strategist here at First Citizens Bank. On Monday, May 13, 2024, our Director of Market and Economic Research, Phil Neuhart, sat down with Marc Cadieux, President of the Commercial Bank, to get his perspective on the innovation economy. By the way, the information you're about to hear are the views and opinions of only the authors at the time of recording and should be considered for educational purposes only.
Phil: Marc, thank you so much for joining us today and taking time out of your busy schedule. Really pleased to have this discussion. Why don't we start with just you telling us a little bit about yourself and the business you run day to day.
Marc: Alright, Phil. Well, thank you for having me on. I'm Marc Cadieux. I'm the president of SVB Commercial, so part of First Citizens Commercial Bank, and in fact, a division of First Citizens Bank, and so 13, 14 months or so into my First Citizens career and tenure in that role. But 32 years with Legacy SVB—will be 32 years in July. The prior decade, I was the company's Chief Credit Officer. And then the 20-plus years prior to that was a credit roles as well, but also a number of different client-facing relationship management, relationship development types of roles. And so it's been a long and wonderful career with SVB and based almost entirely here in the Bay Area, where I've lived for most of that period of time.
Phil: So what do your typical clients look like within SVB's Commercial Bank?
Marc: Yeah, they really fall into two broad categories. There's our global fund banking business. And so that is comprised of venture capital firms and funds and private equity firms and funds that focus not only on the innovation economy, the second cohort of private equity, but also on a number of different categories like commercial real estate, for example, or operating companies that don't have anything to do with the innovation economy. So that's global fund banking.
And then in our technology and healthcare banking group, we serve technology and healthcare companies, life science companies of all shapes and sizes—everything from very early formation stage companies, three guys and gals with a great idea in a garage somewhere who maybe have just formed the company and are opening their first bank account—all the way up to very large corporate, public or late stage private companies and everything in between.
Phil: So focusing on the innovation side after what's obviously been a pretty difficult period, are you seeing early signs of improvement in the innovation economy?
Marc: We are. It's long been said that the best time to start a early stage company is during a downturn. And certainly we continue to see new company formation, despite all of the doom and gloom we've read about. And it's very real. We're in our eighth quarter now of this downturn in the innovation economy. There are signs of green shoots, those pre-venture backs of seed and Series A companies that are continuing to make progress and continuing to be able to raise capital. And we're delighted to see a number of them electing to become clients of SVB.
Phil: So in terms of what these companies have been through, what does their sentiment look like now? Have they come off the low point? Are you seeing a little bit more optimism in the marketplace?
Marc: So I'll talk first about AI and everyone else. If you are a AI company, you're having a very different existence, perhaps, different experience in terms of your attractiveness to investors of all shapes and sizes and the ease by which you may be experiencing the capital-raising experience.
And then there is the everyone else. And for the everyone else, the way I would describe it is—in general, the bar has gone up for the average company. You need to be further along, have more to show for that progress, have accomplished more in order to raise that next round of financing or first round of financing, as the case may be. And that, generally, we think is a good and healthy thing to the extent that looking back the last couple of years, perhaps more companies got funded than maybe should have. And so we're seeing a bit of a right-sizing of that playing out. And on average, we think that is a good and healthy, normal thing for the innovation economy that sets the stage for a period of expansion to come that we hope starts at some point soon.
Phil: What about exits? Obviously, a key component to the innovation economy and venture cap space working. Are you seeing a light at the end of the tunnel in terms of, sort of, the window being shut over the last couple of years?
Marc: The answer there is I hope so. We have certainly seen some initial public offerings by way of example this year that have been relatively well-received. And, of course, the hope is that that will at some point open the window for the rest of the 700-plus IPO hopefuls that are looking to make that exit. And of course, you know, enable capital to make that round trip back to the investors that in turn allocate capital to the venture asset class. And so there's a little bit of that that does need to happen.
We are encouraged by the IPOs we've seen. I made a very bold prediction, I think, in the last "State of the Markets" that we'd see 15 or more IPOs this year—up from my equally less bold prediction of I think it was a dozen last year. And so I hope that happens. And I hope more to the point that that in turn begets more M&A exits as well, recognizing that historically M&A tends to be the majority of the exit activity in terms of number of companies. And again, that round trip the capital needs to make is really important to being able to finance that next generation of startups.
Phil: Right, so you've been in this industry for a long time, as you mentioned. You've seen prior slowdowns for your sector. The easy example is always the early 2000s, the tech bubble, as it was eventually termed. What have you seen and learned as the innovation economy emerges from difficult environments such as this? Is it an opportunity? What learnings can we pull from your past experience?
Marc: Yeah, so there's a couple of points there. I'd say the first is—the opportunity is always there at all points in the cycle. As I mentioned before, downturns are often a great time to go start those new companies. And many of the best exits we've ever seen were started at times that were, you know, less rosy like we're seeing today. And so I think it underscores the importance for folks like SVB of staying in the market all the way through cycles and resisting the urge, as we've seen so many do, to get out when it looks like, you know, it's tough sledding and then perhaps get in to too great a degree when things are up and to the right and it looks like great fun. And so taking that long view, playing the long game is I think a key takeaway.
Dot coms, I think, famously came to an end with the bursting of that bubble. Born out of that in the fullness of time is the more sustainable approach, I'll call it, to consumer internet and dot com that we see today.
And I can think of so many innovations that have done the same thing where, again, the 1.0 phase, a lot of investment goes in, some mistakes oftentimes are made, lessons get learned, and that in turn enables that more sustainable second phase to get started. And so we'll see if AI—perhaps not really a new innovation, but certainly having a moment—turns out to be one of those things in the fullness of time or not, we will see. But that is just one of the many observations that I think is worth sharing today as we go through this particular moment in the innovation economy.
Phil: Marc, thank you so much for joining us today. This is really interesting and really great insight into the space you work in day-in, day-out. So thank you again for your time.
Marc: Of course. Thanks for having me.
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