Target Global urges banks to lower risk by funding start-ups

Global banks can learn lessons from the collapse of Silicon Valley Bank and tailor their offerings to the start-up sector to ensure they make the best use of the opportunities it provides, said the co-founder of technology investment company Target Global.

Lenders should consider extending more of their services to the start-up industry as it provides an opportunity to diversify portfolios, Shmuel Chafets told The National.

“It’s an opportunity globally for banks to get a peek at start-up financing and to get into the start-up level,” he said. “In the long term, it would provide more funding for the industry. It would be very helpful for the startup ecosystem.

“There would be more competition, diversity and risk and cash management.”

California-based SVB was the go-to bank for technology entrepreneurs and startups. At its peak, it was the 16th-largest bank in the US and the biggest in Silicon Valley, a global centre for technology and innovation.

US regulators placed SVB under receivership after it collapsed this month. On Monday, the US Federal Deposit Insurance Corporation confirmed that North Carolina-based First Citizens Bank & Trust would acquire SVB’s assets.

It became the biggest bank failure in US history after Washington Mutual’s collapse in 2008, which triggered the global financial crisis. The saga highlighted the disadvantages of a bank focusing on certain industries, which, in this case, were start-ups and technology companies.

It also exposed the need to boost local funding for startups instead of them relying on overseas lenders.

“Moving forward, a collaboration between the banking industry and the venture capital community is vital to provide facilities and support start-ups and, consequently, minimise the reliance on having to use international banks,” said Philip Bahoshy, founder of data platform Magnitt.

Target Global, one of the biggest VC funds in Europe and Israel, which has about €3 billion ($3.25 billion) of assets under management, is expanding its presence in the UAE market with the establishment of an office at the Abu Dhabi Global Market.

Mr Chafets acknowledged the strength of the UAE’s start-up ecosystem and the financial sector.

“Local commercial banks [in the country] have a good book when it comes to startups,” he said.

Target Global’s expansion in the Emirates has a goal of putting the UAE on its investment map and bringing it to the attention of investors looking for high-growth opportunities, he said.