The Balance of Power is Shifting
Rafael Henrique—SOPA Images/LightRocket/Getty Images
Recently, the news broke that the failed Silicon Valley Bank (SVB) would be purchased by First Citizens Bank (FCB), headquartered in Raleigh, North Carolina. This move signals a shift in the balance of concentrated power away from Silicon Valley toward a more distributed tech ecosystem. However, we should also consider the impact of a 125-year-old bank becoming the new giant in the startup world.
We’re a forward-looking team here at Impressionism Capital, that happens to have deep roots in North Carolina. Our team is made up of three proud graduates of NC Universities (UNC and Duke), and during the pandemic, I relocated from San Francisco to Durham.
This gives us a unique vantage point from which to explore the following questions:
What does it mean for an old bank headquartered in the South to buy a tech banking giant?
Will Silicon Valley continue to be the center of startup activity? Or can we expect more startup hubs to grow in unexpected places?
And, finally how will First Citizens influence the way business is done, even in Silicon Valley itself?
First, The Background
FCB and SVB couldn’t be more different as financial institutions.
FCB was founded in 1898 and has expanded to 500 branches across the country, while SVB was founded in 1983 and operates 17 branches mostly on the coasts. First Citizens, although public, is still a family-controlled and led institution. In short, First Citizens has a broader reach, while SVB has remained very niche in who it serves. SVB has grown with founders and investors who made their money in the first tech boom and every subsequent cycle.
As with many startup veterans, my personal history with SVB runs deep – as a client, when I founded a company, and later, an entrepreneur in residence in the early stage banking practice. While working at SVB, I saw firsthand the breadth of the institution’s connections to the startup ecosystem, the depth of its relationships with all players in the game, big and small, and the deep partnerships it built with other service providers. It was hard as a startup founder in SF not to have a connection to a SVB in some way, which is why the bank run was so panic-inducing in Silicon Valley.
Shruti Shah, speaking on behalf of SVB, during a 2020 Bloomberg TV Interview with Emily Chang, discussing the venture capital ecosystem.
Given the movement toward more remote work, the high cost of living and doing business in SF, and FCB’s already broad reach outside of the tech sector, this move could foreshadow a big shift.
Why This Matters
Why does any of this matter? Because shifting the balance of power means shifting where capital flows, and who gets funded. If the next Google can come from a place like Durham, NC or Austin, TX - what needs to be true in those ecosystems for that to be possible?
As a historical comparison, the startup and venture capital communities in California were created by a strong collaboration between research universities (e.g. Stanford) and the federal government that provided the seed capital necessary to catalyze the ecosystem. Venture Capital itself originated as the U.S. federal government’s strategy to back R&D in the creation of semiconductor chips in Silicon Valley. This initial research investment fueled the first major success stories of Silicon Valley. Subsequently, risk capital from the East Coast and angel investors from the Bay Area turned around and reinvested into the ecosystem by backing more companies. This is why the startup ecosystem in California is so strong. California, for example, has generated more IPOs than any other state since 2003. The IPO’s fuel more growth as capital is reinvested into companies, many of which are based in California.
There are a lot of comparisons that can be drawn between the world of research universities in North Carolina and their collaboration with private enterprise. I saw similar signs of fertile soil in North Carolina when I was an undergraduate at UNC, and it was one of the reasons why my co-founders and I decided to open an office and warehouse in Durham’s Research Triangle park.
There is a thriving entrepreneurial ecosystem here in North Carolina that has the potential to keep growing. Like the Bay Area, the triangle is home to three world-class research universities. It might not have as many IPO’s or acquisitions yet, but we’re on the right track. The amount of capital invested into companies in the state has grown steadily over the last few years, and that wealth is being reinvested back into the community.
The region is smaller in terms of geography and population, and fewer exits has translated into a smaller community of angel investors. However, there are four converging factors that could usher in change:
FAANG’s presence is here. Big companies like Apple, Google, and Meta are setting up local offices because of the tech talent in NC and the lower cost of doing business.
Strong LP community. UNC, Duke and other university endowments and investment funds are generating outsized venture returns and continuing to invest in funds both locally and nationally.
Startup costs are low. Startup founders continue to be interested in building their businesses in a less capital intensive place with top engineering talent.
And lastly, FCB acquired SVB.
Perhaps, the broader tech world should take note. The Triangle is claiming its spot.
What’s Next?
As FCB fully envelops SVB, I’m looking forward to observing how SVB’s relationship banking practice deepens its ties to North Carolina and influences the state’s startup activity. There is a real opportunity for new startup hubs to emerge, but it won’t happen on its own without real investment and reinvestment (when there are exits) in the growth of the startup community.
Power shifts don’t happen overnight, but small decisions could lead to a larger long term change that could shift the concentration of capital into growing ecosystems and we, at Impressionism Capital, will be on the frontlines with the builders.
Shruti Shah is a Venture Partner at Impressionism Capital. She is also an advisor, investor, and part-time COO to hypergrowth companies. Most recently, she was an Entrepreneur in Residence at Nike and also at Silicon Valley Bank. She founded the Y Combinator-backed startup Move Loot, an online full-service marketplace for buying and selling used furniture that raised over $22M in capital. As COO, she led national expansion and general business operations. Prior to that, Shruti worked for the New Schools Venture Seed Fund and was also a public school teacher in Baltimore. She is a proud graduate of UNC-Chapel Hill, resident of Durham, NC and lover of cookbooks, crosswords, and national parks.