This week I made another trip Santa Clara for a two-day training with Silicon Valley Bank (SVB). It’s always good to visit Silicon Valley, especially this time of year. Good weather and good food. Had a great couple of days with a smaller class, I like the smaller classes since it allows for more discussion and interaction.
In this class we had a lot of great questions and discussion. It was clear the students were really working to grasp the concepts. I like to call this SVB course a firehose finance course because of the topics we hit in the two days. By the tail end of day 2 when we hit the cash flow statement and capital budgeting which features concepts such as net present value (NPV), payback, and internal rate of return (IRR) I got the glassy eyed looks from the class. This group hung in well and was solid to the end.
SVB is a great bank that does well financially. Because they work with a lot of technology businesses and startups they end up with a lot of low cost deposits in the form of checking accounts. It turns out these tech companies hang on to a lot of cash because of the volatility of their businesses. It also doesn’t hurt that when they start to make money they usually have very high margins. This low-cost deposit base allows SVB to have very nice interest rate spreads between their loans and deposits. They also have a very nice investment management business for their clients with much of the capital managed on off balance sheet accounts.
In this class, we went through a lot of terminology and finance language. For example, the class wanted to understand what a basis point was. Lately, as interest rates have remained low businesses and particularly banking and finance businesses talk changes in interest rates and margins in terms of basis points. It sounds better when high yield money market accounts pay 20 basis points rather than 2 tenths of one percent. Banks and business executives now use basis points rather than actual percentages. Pretty exciting stuff, right?
We also had some great discussion around the difference between cash and profits. It’s turns out that with revenue recognized when it is earned not collected and expenses charged when they are used and not paid and capital is depreciated even when it has already been purchased, profit is not equal to cash. That is always eye opening in most classes but is was more so with this group. It turns out that SVB deals a greater deal with entrepreneurs who often don’t understand the difference between cash and profit and end up having to get help to survive. This was a very relevant topic for these bankers.
I was able to hit one of my favorite restaurants, Fish Market, for dinner. I was tempted to drive down to the Santa Cruz area for dinner at Cafe Cruz, one of my all-time favorites but I was just too tired. It’s an hour each way but well worth it. I guess staying up for the crazy presidential election on my first night took its toll. Washington just got even crazier! Good luck President Trump you are going to need it!