Most new banks open with a single branch in a single city. Square 1 Bank plans to open Monday with no branches but in multiple cities, including...
Most new banks open with a single branch in a single city.
Square 1 Bank plans to open Monday with no branches but in multiple cities, including Seattle.
The Durham, N.C.-based bank does not need branches to tackle the market it’s after: venture-capital firms and the companies they invest in.
To reach that market, it has hired people in several of the country’s most vibrant high-tech markets, including Seattle, Durham, Palo Alto, Boston, Austin and San Diego.
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Another big difference with Square 1 Bank is that its clients will find themselves paying more than interest and fees for their loans. Many will also be asked for warrants, which allow the bank to buy stock in the companies later.
That’s not unusual for banks catering to the venture-capital world, said Richard Casey, a founder and CEO of Square 1 Bank.
“For the niche we’re in, it’s customary,” said Casey, who in 1992 started a division of Imperial Bank in California to compete with Silicon Valley Bank, a pioneer of lending to risky venture-backed startups.
When Detroit-based Comerica bought Imperial in 2001, he left and sat out a two-year noncompete agreement.
“Recently, I decided to re-form the band,” Casey said. That includes hiring Bob Van Nortwick away from Comerica to run the new bank’s Seattle office and oversee its activities in the Pacific Northwest.
The bank raised $105 million in startup capital from about 200 shareholders. About 60 percent of the money came from six institutions it declined to name.
Square 1 Bank’s competition will come mostly from Comerica and Silicon Valley Bank, said Casey and others.
Their niche involves ” lending money to some companies with no profits and no revenue.
“The model is counterintuitive to what a traditional banker would think about,” he said. “It takes a whole different type of analysis than banking the local beer distributor that’s been in business for 32 years.”
Casey is not concerned that the tech bubble has burst. He likes what he consider to be a more rational venture-capital market.
Unlike some industries, where banks fill the void when the capital markets dry up, banks in this sector provide loans to leverage money for companies that already have venture funding.
“If the venture capitalists who know this company much more than we do … aren’t going to support the company, we surely aren’t going to ride it out with our debt alone,” Van Nortwick said.
The post-bubble market has been good for Santa Clara-based Silicon Valley Bank, which was founded in 1983 and caters to the same types of clients Square 1 wants to serve.
With assets of nearly $5 billion, Silicon Valley Bank has 27 offices nationwide and a strong return on equity of 18.75 percent during the first quarter.
Scott Bergquist, who heads up the Northwest region for Silicon Valley Bank, said there is room for a new bank in the niche. “Competition’s good,” he said.
Enrique Godreau, a managing director of the early-stage information technology venture firm Voyager Capital in Seattle, agreed.
The banks serving the industry now do a good job, he said, but “competitiveness is always a good thing.”
Melissa Allison: 206-464-3312 or firstname.lastname@example.org