Snapshot Terry E. Bess Born: Lakewood, Fla., Oct. 2, 1947 Education: Bachelor’s degree in business management, Pepperdine University Personal: Married, two adult sons Most Admired Person: Donald Bess, his father, because he always gave more than he took During his stint in the U.S. Army infantry, Terry Bess spent a year in Vietnam, where he engaged in some heavy fighting. And 20 years later, he’s still asking himself the same question: “I don’t know why I came back alive. Most of the people who served with me in ’67 and ’68 didn’t come back.” For Bess, Vietnam was an important turning point in his life. The experience motivated him not only to help others (he’s an active volunteer for such groups as the YMCA) but to make something of himself in a professional sense. Bess used his degree in business management to land his first job in banking with the technology group at former Security Pacific National Bank, and then parlayed the experience of working with high-tech firms into a job with Silicon Valley Bank, one of the top lenders for California start-ups. In addition to his duties as head of the West Los Angeles office, Bess is managing a newly opened loan office in Westlake Village, where Silicon Valley Bank hopes to position itself as the bank of choice for high-tech firms between Burbank and Santa Barbara. Question: What prompted your bank to set up an office along the 101 corridor? Answer: Well we’ve been serving this area since we opened an office down here (in Southern California) nine years ago. As our client base continued to grow along the 101 corridor, it just made sense to put an office here and to put our account officers closer to their clients. We have a little over 40 clients in the area in various technology niches software clients, semiconductor clients, computer and peripheral clients, Internet companies. Q: Do you see any signs that greater Los Angeles, and the 101 corridor in particular, is gaining credibility as a high-tech center? A: I think the focus of industry in Los Angeles is starting to shift toward technology, especially in the aftermath of the (downturn) in the defense industry. Meanwhile, the entertainment industry is becoming more technologically based. So as a result of that, we find a lot more start-up technologies, which is attracting investment capital into the area. The investors in this area have been putting capital into the start-up companies for quite a few years, but just recently, especially along the 101 corridor, the activity has increased. Q: Could you quantify that? A: Over the past few years, San Diego County has attracted more venture capital than L.A. and Orange County combined. But during 1998, L.A., which includes the 101 corridor, outpaced San Diego and Orange County as far as the investment by venture capitalists. Q: What is there about the 101 corridor that’s attracting so many start-ups? A: This area is good geographically for start-ups. We have some good university support with UC Santa Barbara and UCLA, which both have good engineering schools. The communities here are nice for living, and technology companies tend to congregate where there’s good housing and a good labor market. As the infrastructure comes into the area, such as our bank and other service firms like CPAs and attorneys, it will provide a climate that’s ripe for companies to grow. Q: What types of companies appear to be moving in? A: The area has historically had more companies in the manufacturing realm of technology, with companies like our clients Vitesse Semiconductor (Corp.), and 3D Systems (Corp.), which have large offices and manufacturing facilities in the area. Of late, the community has been embracing software and Internet companies. I think it’s easier for these companies to come in because they need fewer people to set up shop. It’s clean to the environment, and it makes a lot of sense for communities like Westlake Village and Thousand Oaks. Q: Do you think the 101 corridor is reaching a critical mass in terms of becoming a real player in the high-tech industry. A: I don’t think it’s at critical mass yet. But our interest is to help provide the infrastructure that technology communities need to grow. We bring with us the knowledge base to help early-stage and emerging growth businesses by connecting them with the services they need to make their lives easier the CPA firms, the law firms and other professionals who have the capability and knowledge to deal with start-ups and fast-growing technology companies. Q: What can you offer start-ups in terms of loans? A: If a company raises $3 million, $4 million in equity (from venture capitalists), the bank may put in $500,000 or $1 million in equity on top of that. That just stretches (the company’s finances) that much further down the road. Start-up technology companies don’t have revenue. They are developing their technology, so while they’re developing it, they need to burn through this money to keep their development going. Q: What are some of the special financing needs of a start-up and how do those needs change as it grows? A: Typically they need equipment financing. They need to buy things to outfit the business and help them in their development efforts. At the time a company has finished its technology and is ready to launch, it will need another round of financing to build a sales force and bring in a VP of marketing and get revenue started. Q: A lot of the technology out there can be pretty arcane. How do you find companies worth backing when they aren’t yet making money? A: It’s a matter of looking at the quality of the equity going into the company. If they’re able to raise venture capital, who are the venture capitalists? Do we know them? And what’s their track record in terms of how well they pick the technology? In addition, we read the business plan and try to decide whether there’s a market for the type of technology they’re developing. Typically, they’ll be able to raise capital if they’re developing a product that’s in need. Scientifically, we don’t have the expertise to validate that technology, but the market will prove that out. Q: Some of these start-ups might not be around in five years. How do you minimize your risk? A: We have a lot of churn in our portfolio meaning a lot of our technology companies do get sold very early, because the technology they’re developing is needed by someone else. So it’s certainly something we have to manage through. But usually, they’re being bought (out by competitors) at a premium, so it’s not a risk factor to us, it’s just a matter of losing clients. We typically look for warrants in the company in the very-early-stage products, and those warrants then pay off when the company (is sold). Warrants can stretch out for several years before there’s any gain. And sometimes the gain is very minimal. Every once in a while there’s a home run, and you get a very large payout. It’s just a matter of trying to, on a portfolio basis, (manage) the risk. Q: What does the future hold for the 101 corridor? A: Really, we have to let this market cure a little bit. But I would expect in the next 18 to 24 months that this area has the potential of being thought of as a high-tech pocket. I think as things gel, you will find more of the emerging-growth units of CPA firms and law firms setting up here as well.