How venture banking can play a key role in tech scale-ups

Depending on market conditions and the specific circumstances of your scaling company, a venture bank may be a better fit than a venture capital firm.

As the tech ecosystem in Indiana continues to mature, it’s not uncommon to read stories about scale-up companies like Sigstr raising $5 million in a recent Series A capital raise, or SmarterHQ raising an additional $13 million in venture financing as part of an overall $33.6 million dollar raise.

The days of venture capital activity staying isolated to areas like Silicon Valley or New England are long gone as investors see the value in investing in Midwestern high-growth tech ecosystems like Central Indiana. While venture capital firms in Indiana and from outside of the state are getting more active, the same can be said recently for venture or technology banks.

The terms venture bank and technology bank are often used synonymously and usually refer to a bank with specialization in working with technology or tech-enabled companies. While any bank can make a business loan or provide equity to a company, they often lean on traditional financial requirements when it comes to deciding whether or not to provide capital. Venture or technology banks look at different criteria based on their unique understanding of tech and tech-enabled businesses.

For example, the factors which may potentially determine the growth of a company that manufactures candles or provides automotive repair services are often completely different for a company that produces a software-as-a-service (SaaS) platform. Tech and tech-enabled companies often need to scale-up at a fast rate in order to seize opportunities and stay competitive. This often means the company requires a large amount of working capital that it may expend quickly. A venture bank factors all of this in when making investment decisions. Not surprisingly, venture banks can play a vital role in the growth of a scale-up tech company.

If you take the time to Google “venture banking” it’s likely that you will consistently come across Square 1 of North Carolina (now a part of Pacific Western Bank); Silicon Valley Bank (SVB) of Santa Clara, California; and CIBC, which recently acquired The PrivateBank based in Chicago. Both SVB and CIBC participated in TechPoint’s 2017 Winners’ Circle event. While none of the banks have a branch or permanent office in Indianapolis, they all offer locations throughout many US cities and make regular stops in this region.

Some venture banks are more likely to only do business with companies that have already acquired venture capital funds while others will also work with companies that are “bootstrapped,” meaning that the company was built on the personal finances/investments from company founders and/or from revenues derived from the actual business.

Andrew Schwartz

Andrew SchwartzManaging Director

“Indiana has a terrific tech ecosystem driven by having all of the necessary major ingredients including talent, access to capital, and the experience of companies reaching exits north of $1 billion,” said Andrew Schwartz Managing Director, Technology Banking with CIBC in Chicago.

One of CIBC’s recent clients was Indianapolis-based Archway Technology Partners, a producer of accounting and investment management software used in private banks and financial management businesses. The company was acquired by SEI of Philadelphia and is now known as SEI Archway.

Jason Brown

Jason BrownCEO

“In 2014 we acquired another company,” said Jason Brown, CEO of SEI Archway. “The original acquisition was funded through seller financing. After we completed the acquisition, we went out looking for capital to recapitalize the seller note. However, we didn’t qualify for funding because we didn’t generate the kind of cash flow a traditional lender desired. Nearly everything we made went right back into the business. This is how we operated.

“When introduced to CIBC my expectations were low as I didn’t really understand technology or venture banking. However, I was totally refreshed as they understood our SaaS recurring revenue business model and took the time to understand and trust our leadership team. We partnered with them on two occasions and would certainly do it again. For us, it took a technology bank to allow us to scale-up at the pace we needed to be competitive and allowed us to stay away from affecting our cap table, which can really hurt when dealing with private equity and venture capital firms.”

Andrew Davis

Andrew DavisCFO

MOBI, another Indianapolis-based scale-up tech company, turned to Silicon Valley Bank when it needed capital resources not typically available from traditional banking institutions. “The first word that comes to mind when I think about Silicon Valley Bank is relationship,” said Andrew Davis, CFO of MOBI. “We used to have an account with a traditional big bank, but that’s where it started and stopped — with a checking account. What we have with SVB is a great relationship with a true financial partner.

“Our team at SVB understands our business and helps us navigate the ups and downs that come with a growing company. Bank debt is not always a one-size-fits-all, set it and forget it kind of structure. Over the years, our business and our financial needs have changed, and SVB has been by our side all along the way. They have provided us capital that we could actually use when we needed it most, without handcuffing the growth of the business with overly stringent covenants.”

As the Indiana tech ecosystem continues to grow and mature, there are now many options available to those companies wishing to scale-up. It’s important that owners and financial executives investigate these options and find the ones that best suit their business model, team and their growth objectives.

SEI Archway

CATEGORY: Financial Technology, Technology/Services CITY: Indianapolis

Software and service solutions for ultra-high net worth families and their trusted advisors that deliver clarity, control and peace of mind

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MOBI

CATEGORY: Big Data/Analytics, Mobile Technology CITY: Indianapolis

MOBI is a mobility management platform enabling enterprises to centralize, comprehend, and control their device ecosystems.

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ABOUT THE AUTHOR

Roger Shuman is the Business Development Program Manager for TechPoint. He introduces Indiana’s emerging scale-up tech companies to capital and networking resources.