Changes

*Jerry Engel (engel@haas.berkeley.edu), Faculty Director, Lester Center for Enterpreneurship Entrepreneurship and Innovation

Michael estimated that that SVB has 'valuations' data on 2600 early stage firms, with many firms having multiple valuations conducted over time. [http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_409A Internal Revenue Code 409A] requires that there be no discrepency discrepancy between an options value and the value of common stock, in part to prevent issue with backdating of options, and that valuations be conducted by a third-party at an arm's length from either the 'service recipient' (i.e. employee/executive/etc) and the 'service provider' (i.e. the firm). Thus firms may have approached SVB to provide them with valuations on the firms common stock potentially every time that there is an event, such as a stock option issue, which would require compliance. SVB has been collecting this data for approximately 4 years.

One core service that the bank offers to its clients is the management of their firm's capital tables. The CapMx database was estimated to have approximately 2000 users, and contains details on the capital structure of the firm including common stock outstanding, preferred stock outstanding, warrants and stock options, employee share option plans, and liquidation preferrencespreferences. The users of this data are both the firms themselves, and accounting/law firms that work for these firms. The tables are 'initialized by agents' and then accessed by the firms.

SVB takes data from the validated and cleaned development database and uploads this onto their online [http://www.birst.com/ Birst] based web-platform, to provide their benchmarking service. Companies accessing this data through the Birst interface are restricted the selecting aggregate benchmarking portfolios to compare their firm against. The interface allows them to construct portfolios on the basis of geography, industry, comparability in terms of financial ratios, and so forth, and reports the size of the comparing portfolio as either 5-30 firms, 31-100 firms, and so forth. Firms are restricted to seeing comparison portfolios composed of at least 5 firms. SVB is trying to advance this service into a CEO desktop tool, which will report things like [http://willprice.blogspot.com/2008/03/magic-number-for-saas-companies.html Josh James' Magic Number] - this requires fine grained data as well as uninterupted uninterrupted sequential financial statements, which is surely good news for researchers going forward.

The database can accomodate accommodate data on the the authorized capital of the firm, all transactions performed on this capital, individuals/entities associated with this capital and/or these transactions, and details on the firm itself. However, there is little to no incentive for the firms or representatives of the firms to fill out any data beyond that which is required to record and use the capital structure at a particular moment in time.

*By conducting transactions on the underlying structure through the online interface the structure can be automatically updated. (Note that in order to conduct a transaction on the capital structure, the components of the capital structure relevent relevant to the transation transaction must be up to date. Thus transactions can act to validate the underlying structure data.) '''A full history of every transaction ever conducted is maintained throughout the firm's lifetime.'''

*Convertible Promisory Promissory Notes (CPN)

Firms may also examine issues for [http://taft.law.uc.edu/CCL/33ActRls/rule701.html Rule 701 Compliance], conduct (one-stage) anti-dillution dilution analysis, conduct (one-stage) liquidation preference analysis, compute the firm's fair market value, and build a wide variety of reports on the capital structure or transactions conducted upon the capital structure. (Note that by "one-stage" I mean that the data can be taken from the system and a single hypothetical analysis can be performed, and that it is not possible to temporarily store the changed capital structure that would result from the hypothetical analysis in order to conduct further hypothetical analysis. This does limit the usefullness usefulness of the tool with regard to simulation of the capital structure over time, such as for an exit analysis. SVB have recognised recognized this limitation and are considering potential improvements [EJE]). No permanent record is kept of the one-stage analyses, or the reports produced.

The database contains 4032 firms records, of which 924 are 'blanks' which are created when people test or demo the system. There are additional firms named "X - In Conversion", "X - Expensing Only", and "X - Dissolved", (where X is string) that should be discarded. Thus there are a little under 3000 active firms on the system. Of these only 339 have completed some information on the firm beyond that which is required to maintain and use a record of the firm's capital structure. The database uses its own IDs (seperate separate from the CIF IDs mentioned above), but the firm name's are recorded directly from the Articles of Incorporation and should be sufficient to fully identify the firms.

The database runs on an Oracle platform, but the actual structure of the data in the database was not discernable. The R&D group of SVB is responsible for the operation and maintainance maintenance of the underlying data. However, it seems very likely that a SQL script could pull all relevant data into a single flat file for analysis.

#To enhance internal decision making, particularly with regard to business risk lending, but also to establish best practises practices within the bank

SVB believe [EJE] that Haas could contribute the brand building strategy by producing (practitioner relevant) research that would be published in (trade) journals and/or presented at (trade) conferences. It seems possible that we could also contribute to the first two reasons directly. Specifically, PhD students, in the course of accessing and processing data for research, could provide recommendations for commercial applications of the the data that are current unrecognized or unexploited.