Jonathan Yip, HSBC Innovation Banking

(upbeat music) - Hi everyone, Ian here. Or we're back with another episode. It feels like it's certainly to me that it's been a long time between episodes. I think it's maybe been a couple of months. The good news, because I love doing them, is that there are more in the pipeline and we are trying to increase the cadence once again. I love doing podcasts and this one was a great one. Recorded this venture down under a couple of weeks ago. We did this on the Gold Coast. It's our ninth version of this. It's an annual conference get together for venture capitalists. Three days, two nights. I think there was 170, 160 VCs in the room with another, if you include the founders that came for the pitch night and a few of our sponsors, there was over 200 in total. So big event. It was one of the biggest ones we've done. Very successful. We really loved doing it. There's also a little bit of noise. I did record this in the main hall. And at some point, there was a gaggle of VCs that came out of a session. I'm not sure what the collective noun for VCs is, but that is the one I've decided on. Guest today, Jonathan Yeap. He's the managing director, head of innovation banking for Asia at HSBC. He flew all the way in from Hong Kong. Jonathan's been with the bank since 2008. He's had a pretty spectacular career. He joined as an intern and just hasn't left. Spent time in UK, Malta, Hong Kong, six years across San Francisco and New York. Five years in Korea, I think. And now he's back in Hong Kong building out the innovation banking across Asia. If you're wondering what innovation banking is, that's a good question. Good news is, we spend a lot of time in the episode on it. If you want the short version, HSBC bought Silicon Valley bank, UK version of it anyway in 2023 and has built a global platform in top of that. There's teams in 10 of the largest venture markets in the world, five of them in Asia, including Australian New Zealand. So Alan and his team are active here. We get into what Jonathan's seeing across the region while global venture funding hit half a trillion dollars in the first half of this year and why that absolutely isn't landing evenly. Really, there's a shift from financing software to financing, I guess, atoms, energy, semiconductors, data centers and where Australia can genuinely win in the AI stack. Now, last part is the good bit, especially coming off Antoine Vandal. Hingles session that same morning about our lack of sovereign model capability. I hope you enjoy this, here we go. Delighted to be joined by Jonathan Yip all the way from Hong Kong. So Jonathan is the manager director and head of innovation banking for Asia at HSBC. So pretty cool role, pretty big role. And how long have you been in that role, Jonathan? - I've been in this role for two years. I've been with the bank 18 years. - Wow, okay. So you must've been just out uni or then or thereabouts. Fresh out of school, my first job, actually, first internship second year. And I came back for a third year internship and then eventually joined full time. - God, that's an awesome career trajectory. - Yeah, so interesting for you, like you basically, you've had your feet and just about every jurisdiction across the world. They're all the interesting ones anyway. So maybe just give us a little bit of your background, career arc that ended up here. - Yeah, sure. So I joined the bank in 2008. The bank's trajectory has taken me through markets like the UK. It spent some time in Malta and moved to Hong Kong. And then I moved to the US in 2013, spent six years there between San Francisco and New York, eventually transitioned into Korea, where I was head of our global banking practice. And I spent five years there before relocating back to Hong Kong two years ago to work on this early stage proposition. - My background is on the coverage side focused on covering a mega-cap US tech. - So when you see coverage side, for the unbanking initiative, what does that mean? - It just means working with clients, helping them navigate HSBC's platform, supporting them across all the different markets where they have operations and just being a good banker. - So not necessarily specifically, M&E or corporate data or anything like that. - No, no. - And just just general support. - That's correct, yeah. - I mean, they should be kind of in your broad platform, you know, we're in 50 plus 60 markets. - So you're kind of a navigator or a conductor, so you will help introduce them to the right people within. - No, sort of think about us as the window to the bank. And so we advocate the bank in front of the client and, you know, for the client will, yeah, we advocate them in front of the bank. - Yeah. You know, so innovation banking is a fairly new division. I mean, I love it because if you start writing it, it looks like you're gonna write innovation B, but you've finished with banking. So we're kind of like, we've got some enlightenment there. But it is new. So it's probably worth just maybe educating the audience a bit. - Don't click into that a little bit. - So innovation banking, the catalyst for this global business was when we acquired Silicon Valley Bank UK back in March 2023. And we saw an opportunity to build a global banking platform that was focused on the unique needs of venture capital firms and the portfolio companies that they invest in. And so in the three years that has followed since then, we now have teams in 10 of the largest venture capital markets in the world, US, Europe, UK, Nordics, Israel, and in Asia. We have China, Hong Kong, India, Singapore, and Australia. And so I look after Asia-Pacific region based out of Hong Kong. - So of the 10 regions, like you go sort of country heads or regional heads for each one, I mean, how many, how many Jonathan's are there in this? - I had a Asia, which is so I double hat, sort of Hong Kong China, look after and oversee Asia. And Dave Sabel, who you know is based out of San Francisco, he's our global head. And we do have innovation banking heads across each of the sites that I just mentioned. - Yeah, yeah. - Yeah, so you guys got involved with us last year. I think Alan Waters runs the Australia team and his name is Sophie and a few others. Yeah, no, they've been great. I mean, they're just such a presence and they're just good people and the care. And then he managed to convince you and David to come to venture down under last year. - That was my first. - Well, he was your first and David and not being to Australia. - David's first hand in Australia. - Yeah, yeah. And we dragged him all the way through. - I think it was my first time in Australia, there you go. And I think, you know, you guys did come away from that. I think, you know, I don't want to put words in your mouth, but you did seem pleasantly surprised, maybe is this way of putting it like any reflections on that jet like that visit and what you've seen since? - Yeah, I think the way that Australia's able to bring together the community and really kind of connect share experiences was one surprise or, you know, something that resonated with me, you know, post trip. I also learned a lot about the ecosystem and the efficiency of every, you know, dollar venture capital and the number of unicorns that, you know, to Australia markets, lots of interesting things happening on frontier tech, you know, whether it's quantum or climate tech. And so, you know, we walked away really with a much deeper appreciation of, you know, the contributions that Australia makes, not just in Australia, but to the world. And to different markets like the US and Europe and including broader Asia. - And within that community, I mean, like you've always a back at Benchdown under this year. I mean, it's bigger than it has been. Like we've got a hundred and six hundred. - Yeah, well, if you put the founders and some of the government people last night, there was the full cohort was over 200. I mean, that's a lot. I mean, so do you see this in other regions where you have that sort of tightly bonded, kind of want to help each other in the venture world? Or is this unusual here? - This is probably more unusual, I would say. Yeah, you have markets that are less developed and then you have markets that are extremely large in scale where it becomes really difficult to organize. And then Australia sort of is right in the middle of that where, you know, it's small enough so that everyone knows everyone and everyone's here to support each other. But it's not small to the point where it's irrelevant. That's what's interesting about it. - Yeah, and there's definitely a lot more international interest. I mean, I think we've got 20 overseas non-Australian companies here, so I mean, quite a few from the US. Like you've got wisdom ventures, Bradley Horowitz and Kozla and, I mean, there's some big names that are here. Few from Singapore, quite a few from New Zealand. Like, I mean, why is that? - Why is that? - You've seen more interesting news doing more. - I think innovation in this cycle is a global sport. So, you know, the chase for talent is very real. The chase for new technologies and frontier technologies is very real. And, you know, Australia is some of the best universities in the world, you know, very high quality founders and smart capital and smart money will always, will always come to where the source is. - Let's get back to the innovation, but innovation, I always say the innovation, but innovation banking team and what you're actually focused on, 'cause you're not equity investors, but you do support the broader ecosystem. - The broader ecosystem. - You need to just define what you do and what success it's like. - First and foremost, you know, we are a bank. So, it's the basic services that a bank can provide and offer to a community. Each of our markets, we have structures. Within innovation banking, that focus on specific verticals of the innovation economy. We do have teams that look after and bank the venture capital firms. We have teams that bank the portfolio companies that these venture capital firms invest in. We have teams that underwrite credit and unique risk capital as it relates to this community. So, think about risk capital and risk limits that are allocated to companies that are pre-profit stable or lost making, not cash flow generative. We also do capital coal lines. We do cheap. be financing. So, you know, a team that, that really understands how this community comes together and how money flows and underwriting, you know, credit structures that can help them do what they do best. Yeah. And the last one, we also have business development and GP coverage. So, so each of the verticals work together to understand how the community is, is thinking where they're investing, what are some of the problem statements that they're solving. And we ingest all of that and try to help them, obviously through a banking framework, whether it's opening accounts or moving cash or managing treasury, hedging risk, or maybe sometimes facilitating, you know, new connections and trying to really bring the best of the HSBC platform, you know, to, to all the end of it. Yeah. I mean, you mentioned Silicon Valley Bank and, you know, you did buy the UK assets there. You know, and I have heard, I think I would you or someone else talking about, you know, their model was good. More understand, I didn't work closely with them, but from what I understand, they were really beyond banking. They, you know, they banked all the amazing companies and VC firms, but they did act as that sort of lubricant, I guess, for the, the sector. We bank over 50% of all series A in the UK. Oh, well. Yeah. That's true. So it is, um, yeah, I look at it as a community, I haven't spent not much time in the UK. But, um, yeah, we think about it as, you know, whether you want to call it beyond banking, um, but banking, you know, in itself can be a very commoditized product. And so we, we think a lot around, you know, what makes this community unique, you know, people that fundamentally believe in deep change for the world to try to fix, you know, what they see as not right. And, and a lot of it is around, yeah, the base layer is really kind of banks and banks account moving money, keeping money safe and lending capital, but it's also about introducing them to customers, introducing them to new investors. Um, and so we work very closely, um, with our private bank to, um, you know, create connections and maybe facilitate new forms of capital that come from family offices, for example. Um, you know, H is one of the most incredible things that they just be see is that we have a client base that ranges from, you know, small mom and pop shops to some of the largest companies in the world. And many of these customers represent important revenue sources for startups. So, you know, we work through innovation days and in our markets to bring together, um, you know, startups that are solving for tomorrow's problems and, you know, how we can get that onto the radar of some of these big corporates that have these problems if they want to solve. Yeah, that's awesome. That background noise, by the way, for those listening, is the, the VCs just coming out of a session. I don't know what the collective nine for VCs is, like a gaggle of breeze of VCs. I don't know, but it can be, yeah, in a noisy group. So, uh, like hopefully that background noise is not too much. Um, anything else on, um, anyone listening who's interested in the innovation banking team or signing up or seeing what it's all about, it presumes there's like a website or like, what should they do? Yeah, we have our website. Um, we, we're very active in every single market that we're in. Um, you can call us on Lincoln, you reach out. Um, otherwise, you know, we usually show up at many ecosystem events. And success for you is like, you start with signing up as many as customers, like basic banking services and then sort of building on top of that eventually. Is that kind of what you're trying to do? Yeah, success. Um, I mean, there's different forms of, of success. I think, you know, in a very broad sense, I think, you know, to me, in a very personal level, you know, innovation banking is about global prosperity. So, you know, as you're seeing the ecosystem mature as you're seeing the ecosystem grow as you're seeing founders, um, be able to solve, you know, new opportunities, you know, then inherently, you know, the, as the system becomes better, I think, you know, banking becomes better. Um, you know, there's very, uh, technical definitions around success, like the number of companies we onboard, you know, the, the amount of liquidity that we're able to bring into the ecosystem, uh, the number of all call it entrepreneurs that we can refer onto a wealth platform who will become, yeah, tomorrow's ultra high net worth potentially. Um, you know, we work very closely with our investment bank as well, you know, as companies grow in scale and they're thinking about strategic options or their next phase of, of their company journey. How do you take them public? And so, yeah, we're tracking all of that. Um, and, uh, and, um, yeah, we, uh, we hope to hit, you know, we hope to make progress in every single one of those metrics. So what are you seeing? Yeah, what are you seeing in market right now? Yeah, I think Asia's a very fascinating region. And, you know, in the last two years, um, I've certainly, certainly seen maturity sort of play through all the different markets that we operate in. What's interesting about Asia is it's a region that's so diverse, uh, you know, it's high growth in many of the markets that we operate, whether it's, you know, Southeast Asia or India, China as well. Um, there are strengths in each sub-region. So they all play to their strengths and they also sort of complement each other in some way, shape or form. So when I take a look at, you know, Asia, you have markets like, um, India that has a very structurally positive long term story, you know, you see urbanization, you see, um, you know, startups and scale-ups continue to grow and create new business models around transacting and, uh, very active, um, you know, mobility, consumer, fintech, you know, late-stage, um, uh, sector themes playing out. Um, very active early-stage, you know, sovereign tech stack, uh, India tech stack, that's, that's also emerging. And that, that's pretty interesting too. And, you know, that's India, um, in itself. When I look at China and Hong Kong, um, you know, China has been, um, doing really well in advanced manufacturing, they have their own AI models and we talked a little bit about those labs. There we have it yesterday. And, um, you know, when I look at Singapore and ASEAN, you know, very digitization continues to be a big theme. Uh, and AI, you know, I think Singapore is doing a great job at, you know, sort of positioning itself as a trust layer for the AI economy, um, so I'm watching that space quite quite closely. Yeah, I mean, because it's just, if you think about the, what are the populations that some in between China and India and Indonesia, and I mean, there's some massive population sensors within the areas that you're recovering. Correct. I mean, I, I, I, where, where is that going to go? I mean, let's put China aside, because there would be a slightly edge case, but Indonesia and India, what, what are you seeing there in terms of the start off in venture world and adoption of AI and whatever else you see? FinTech is very big. Okay. Financial inclusion is a big topic. And, um, you know, kind of gone from, you know, not much to everything. It's kind of like, you know, the, the, you've went until clearly the bypass fixed lanes. And you'd be surprised like when you look at, when you look at some of the business models that come out of India, I think they are category leaders in FinTech. And there's a lot, I think the rest of the region can learn from the India market in terms of how they think about, you know, B2B, B2C, um, many, many, very interesting models, that exist in there. And the venture world, I mean, we're a venture capital conference, and we've, we've talked to him and there's a lot of excitement here. I mean, it feels that we are kind of hitting into more of an upswing in the cycle. There's a lot of positivity. It feels, you know, the next 10 years is going to be amazing that, you know, the, the genuine tailwind coming from AI is real. Is that what you're seeing and your coverage as well? Absolutely. And the, the cycle's continued to move faster, right? And you think a couple of years ago, we're talking about this yesterday, everyone was talking about applications, applications, applications and, and code and foundational models and LLMs and agentic. Yeah, there's been a shift in the market more recently that's kind of moved towards more, you know, financing atoms, which I talked about yesterday. And how do you think about energy? How do you think about semiconductors? How do you think about data centers? And how that entire AI supply chain kind of comes together? And that's been very exciting to watch that transition in the, in the region. I would say, you know, in terms of where venture capital is at right now, it's healthy. I mean, you know, it's been growing every single year over the last three years. I think 2024, we had roughly globally about 300 billion or 300, 350 billion. That was deployed in the venture capital globally. Last year is 425 billion. And I think this year alone, just the first half, we hit 500 billion already, right? And so, so that there's global numbers or global numbers, right? In the US, we'll attract a disproportionate share of that. But it is, you know, people are investing and the money is there. But it's not, it's not falling evenly across all sectors, across all markets. And so the market is becoming more selective. It's a lot more disciplined. I've always said that I think, you know, investors have no patience for the average startup story anymore. So, you know, when it comes to like late stage, for example, if you have a good team and you can execute well, and there's conviction around, you know, tackling that market. opportunity that you're working on, you will get funding and these funding rounds are getting larger. Yes, there's a couple of outliers and it drags the entire average up. But those are, that's that side of the that side of the journey is functioning. You touched on FinTech as one of the big areas that you're seeing trends and any other trends that you pull out within what you're seeing. So I mean, AI kind of permeates everything and I guess what's in behind that is the requirement from energy and I guess data centers and but you know any, what else would you pull out the deep take or like where's the future? I mean for us across Asia, deep tech continues to be a big theme. I still think infrastructure and data centers and GPU financing are our topics that we're increasingly hearing. Anything else you want to add on the innovation banking and what you're seeing in market? I mean, maybe that's a good segue actually to to talk about Australia because you're here. You know, you haven't been back since last year. I mean, any noticeable changes from the energy or what you've seen in market in Australia in the last year. I'm hearing a lot more around frontier technology out of Australia. I think when you think about topics like quantum, when you think about topics like climate tech and how Australia can enable the transition into an AI enabled world has resonated very strongly through the different conversations that I've had. And would you differentiate frontier tech from deep tech? I mean, the two, but kind of say very similar, very similar, but slightly different. Frontier, I would put like, you know, quantum in the frontier sector. And on from the Australian Institute for Machine Learning, I think I've got that title right this morning. It's a professor. He's an amazing story. Like one of his graduate students went off and found a deep seek and, you know, sort of some really good capability from an Australian working in Australia in that area. One of the challenges I think he was addressed or pointing out to us all in the room is like, there is a existential risk in some sense that we're reliant and all of our portfolios are building applications and top of other people's core competence, which is really the LLMs out there. There is no sovereign capability in Australia. So if those models are pulled or they go away, there is a big risk to Australia. I mean, that's probably true as well. I mean, maybe not in China because they have their own, but there's not many of the other markets you're covering that have that LLM coverage. Did you see that as a risk or do you see that as a risk as well? Yeah, so I thought maybe I'll try to respond to that in two parts. I think frontier labs and the ability to research design and deploy models is an entirely sort of different game. You know, there's a lot of money. It's an arms race. And I do think you know, the verdicts still out there in terms of whether close models or open weight models are the way to go. My personal belief is that both models will continue to coexist around the world. One thing that we've noticed is that the gap between close models and open weight continues to close, you know, a couple of years ago, you know, it could have been an eight month gap between close and open weight. That's that's dramatically. And in some estimates, some people say that, you know, sometimes it's just a matter of weeks before, you know, close models and open weight models kind of converge. Part of the AI value chain where you can create operating leverage is actually through infrastructure. So, you know, which market, which country can get the right equation, bringing the right energy mix with the right data centers, with the right semiconductors, and the data sets and the data modes, you know, to enable some of these foundational models to operate. It's in a certain sense, like that's sort of where I see Australia being able to play to its strengths. You know, one of the unique things about this innovation cycle is that it's very infrastructure heavy. There's an infrastructure theme to building out AI. An infrastructure is something that I think Australia understands very well. And how do you, how do you bring all of that together to create an AI, I'll call it infrastructure stack, that can power some of these models that are being rolled out? Yeah, I mean, I found the whole conversation this morning, fascinating just about where, you know, where the risks are within that AI stack. Actually, one final data point on maybe pull out, which I found fascinating was the, I tried to push him at the end of our interview about the, how much it would cost for Australia to build out his own LLM that would be broadly similar to maybe not anthropic and Google and open AI, but maybe more like a deep seeker or similar. And the number we can't, when we squeezed them, it was 250 million. Now that sounds like a lot of money. But when you compare that to the trillions of dollars that, you know, the infrastructure giants, or the AI giants of spending on infrastructure and everything else, it is tiny. So like sometimes being a fast follower is maybe an advantage in this world. I don't disagree with that position. Yeah. And I think, yeah, developing a model and everyone will have their own opinion around, you know, distillation and whether that's a good thing or a bad thing for the market, but it does work and it does create efficiencies. We haven't really touched on venture data. I mean, that's, you guys sort of dabble a little bit in that in some ways, but did you want to touch on that and where do you see the future there? One of the things I'll say with the financing of this innovation cycle is that you need different forms of capital to build out, you know, because as I said earlier, it's almost an infrastructure related play when it comes to building it, supply chain. You know, you're looking at equity capital, you're looking at venture capital, you're looking at patient capital, you're looking at sovereign capital, you're looking at venture debt, you're looking at bank credit. And so a lot of that needs to come together to enable, you know, the build out of all this infrastructure that we're seeing. You know, with respect to venture debt, you know, banks historically have focused on predictability, cash flows, assets that, you know, we understand, you know, we do a lot better on financing working capital. Venture debt is something that we do dabble in every now and then. It's not a, it's not a big and broad asset class here in Asia. We are working with the teams to see how we can bring more of that risk capital into the region, leveraging on some of the, some of the, I'll call it learnings and specific sector knowledge and debt specialists that we have in, in the UK and US. We are, we're on a schedule with venture down under here. So I appreciate you carving out some time and I know you're in a fairly short trip when you're getting home. I'm heading home tomorrow night. Tomorrow night. Okay, so we got, what's left? We got the costume party tonight. You're a costume party tonight. Yes, yeah. Nautical rocks or something like it. Yeah, I got Alan's, Alan's found a costume for me. As I'm sure what it is. Okay, right. So this is a mystery. You could be anything. You know, I'm coming as echo man. So I reckon the king of the underworld. So I thought that was appropriate. Anyway, that should be a bit of fun. And then you're off tomorrow. So I appreciate you carving out time. You know, congrats on everything you're doing. I mean, I think it's, it's, look, it is, we like working with companies that are providing a genuine value added service to the market. And I'm pretty excited about what you guys are doing because I think it is, it's needed in this market. And, and I really like you and the team just in terms of the way you're approaching and leaning in. It doesn't feel transactional. It feels caring. If there's such a thing, you know, like, you know, caring and banker, you know, it praises that you'll hear together, but I think you guys here kind of do expose that. So appreciate that. Thanks for coming on the show. Thank you, Ian. And such a wonderful conference. Thank you for having me. Thank you. You're welcome. All right. Thanks for listening as well. Everyone. Cheers.