On October 2, 2013, the Berkeley Center for Law, Business and the Economy (BCLBE) hosted a lunchtime talk on venture finance in China by Arman Zand, Senior Vice President of SPD Silicon Valley Bank in Shanghai, China. Zand, a Haas MBA (class of ‘09), spent the last four years in Shanghai establishing Silicon Valley Bank’s (SVB) joint venture with Shanghai Pudong Development Bank (SPD). Unlike other banks, SVB is a financial institution designed to serve entrepreneurial and early stage tech companies.
In his presentation titled “Is Venture Finance in China Possible? The View from Silicon Valley,” Zand spoke about recent developments in China’s economy, some challenges he faced in developing China’s first venture capital bank and lessons he learned along the way.
Before delving into the main issues with developing a venture capital bank in Shanghai, Zand gave a brief explanation of recent developments in China’s economy. He explained that China’s economic development is rapidly moving forward with the hopes of transitioning from a labor economy to an innovation economy that embraces SMEs, or small and medium-sized enterprises.
Subsequently, Zand explained some of the challenges he faced while in China, including working with Chinese banks that are primarily mortgage lenders. The majority of all bank loans in China require real assets to serve as collateral; however, entrepreneurial companies only have IP collateral: trademarks, patents, software code and the like. The lack of real estate makes venture finance “extremely challenging.”
Nevertheless, a recent development in which Shanghai announced a new free trade zone (FTZ) could create a superior environment for venture finance. He explained that this had the potential to free up renminbi (RMB) convertibility, allowing foreign banks to enter the new FTZ, which would ultimately allow new industries to enter the market. Although this was only an announcement, Zand stated that the implementation of such a policy would be a potential breakthrough for SVB. China wants to move to an innovation economy, but its banking system is not set up for it, he said, which is where SVB comes in—they hope to develop venture finance for entrepreneurial businesses through their joint venture with SPD.
Despite these economic challenges, along with various cultural barriers mentioned throughout the presentation, Zand shared the lessons that he learned from his experiences, and he offered advice to young lawyers and business professionals aspiring to develop a career in venture capital in China. Undertaking such a project in China requires one to learn new norms. Also, if you are trying to break ground, do it your way, he said. Ultimately, he encouraged members in the audience to be resilient when faced with obstacles.
In closing, Zand encouraged the audience to come to China and his optimism for the future was matched only by excitement for being part of the team at SVB to develop China’s first venture capital bank.