Silicon Valley Bank’s Mike Kohnen Looks at Emerging Trends in the Midwest Innovation Ecosystem

Mike Kohnen has developed strong ties across the Midwest “innovation ecosystem.”  During his 18-year banking career in Chicago, he has worked with early stage, growth stage and late stage large corporate ventures. For the past eight years, he has put his Midwest work ethic into action at Silicon Valley Bank, where he is the managing director of the Midwest Technology Group in the company’s Chicago office.

“What attracted me to Silicon Valley Bank is the clear differentiation the bank has created,” Kohnen explains. “SVB consistently has been focused on specific market segments, particularly technology and life sciences, over several decades.”

SVB is not a direct investor in the entrepreneurial companies it serves. Rather, its core business is to provide debt and unique banking services, often working closely with equity providers to complement and optimize capital strategies for high growth companies. “As a commercial bank,” Kohnen says, “we provide venture debt, growth capital and late-stage senior debt, and work with the venture capital community or the private equity community, depending on the stage of the company we are supporting.”

Recently, we spoke to Kohnen, who constantly seeks to identify trends and opportunities with Midwest entrepreneurial start-ups, other commercial banks and venture capital and private equity investors.

MGCS: How does the Midwest stack up to the rest of the country in terms of access to capital?

Kohnen: I think it’s important to correct the widely accepted notion that there has been an absence of funding to innovative technology and life science companies in the Midwest region, which is sometimes referred to as the “fly-over states.” Capital finds innovative companies at the various stages of growth wherever they exist. It may be more difficult in some regions versus others, but the Midwest has proven the capacity to attract great thinkers and the ability to launch innovative companies. That is why Silicon Valley Bank has been committed to the Midwest region for nearly 20 years.

MGCS: What trends do you see emerging in the Midwest innovation ecosystem?

Kohnen: We’re seeing a sustainable increase in venture capital investing in the Midwest from both regional and coastal venture capital firms. The fact is, there are great companies to invest in across the Great Lakes and Great Plains region, but start-ups tend to fund their growth in different ways.  For example, a coastal start-up company may raise a higher amount of capital quicker in the early stages to accelerate to a high growth phase. The Midwest pattern tends to be to bootstrap companies initially and, in many cases, raise institutional growth capital from later stage venture investors or private equity firms at a later growth stage. Midwest start-ups progress from bootstrapping with capital raised from friends and family to angel investors to local venture capital firms based in various metropolitan areas, such as Chicago, Minneapolis, and Columbus, to name a few.

MGCS: What are some of the factors behind this increase in VC investment in the Midwest?

Kohnen: First, there is a thriving ecosystem and unique character-building in the various metropolitan centers across the Midwest, and more companies are gaining visibility. The region has a few important ingredients to support this trend, including great universities and a talented labor pool. In the last couple of years, several new factors, such as the emergence of the cloud, have been favorable to Midwestern entrepreneurs, because these advances have allowed early stage companies to reach a certain point in the growth cycle without having to raise as much capital. However, once these start-ups move from ideation and product development to become thriving companies, you tend to see some late stage venture investing or even some growth capital investment come into play.

MGCS: What sectors offer investors the biggest bang for their buck?

Kohnen: On the technology side, we see a lot of business-to-business, or B2B, software companies in the Midwest that use technology to help other companies improve their performance. In many cases, those B2B companies are relatively unknown, yet there are some great growth stories here. We are seeing evidence of other sectors popping up, including business-to-consumer, or B2C, and social media, which represent evolution beyond the strength in B2B software. This is pretty exciting.

MGCS: How does Silicon Valley Bank help to fund growth?

Kohnen: We work with innovative companies when there’s a venture partner involved across all stages, including early, growth and late corporate stages. We can put debt into many companies before general-industries banks can, because of our sector focus on technology and life sciences. We have a deep network with the VC community and work with them on early and growth stage companies, and with the PE community on later stage growth and corporate stage companies. By providing debt capital on top of equity capital, we give companies additional runway and the option to avoid taking on an unnecessary amount of venture capital, which dilutes the ownership stake of the company founders and other managers. Through our experience over various market cycles in the last several decades, we also tend to know when it’s good to use debt versus when debt is less optimal, if a company is too early in its growth phase.

MGCS: Do you assist high-potential start-up companies in other ways?

Kohnen:  The service side of our business can be overshadowed by discussions on how companies get funded through debt and equity.  However, in the context of a rapidly growing global economy, our service side can be just as important and strategic for the types of companies we work with.  Many companies at a very early stage have complex cash management needs or international growth strategies ─ areas where we have created unique offerings and assigned product specialists who can assist and increase the probability of our clients’ success.

MGCS: How has SVB benefited from participating in the Michigan Growth Capital Symposium?

Kohnen: It’s a great forum and one of the most important events in the Midwest. The MGCS gives innovative, early stage companies access to the venture investment community and opportunities to showcase their products and services. Over the years, I’ve created long-term relationships with many entrepreneurs and members of the venture capital community, both coastal and regional.

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