"Trust Me"

. . . isn't enough for most banks when it comes to lending to high-tech start-ups. How to cozy up to bankers and get the financing you need

In spite of all the announcements that splashy start-ups and young technology firms are grabbing megabuck investments, money to launch an Internet business isn't exactly dropping out of the sky. This is particularly true for women and minorities, who together get less than 4 percent of venture capital even though collectively, they're opening small businesses much faster than other groups.

So what options are out there for entrepreneurs who fall outside the radar screen of venture capitalists and angels? Can they go to banks? Maybe.

An informal Business Start-Ups survey of some of the nation's largest or most notable banks found that most do not lend to Internet start-ups and have no intention of doing so in the future. There is, however, a handful of banks that have taken on this volatile business segment, and they're doing so with a lending model that's definitely outside the banking norm.

The veteran in this banking subset is Silicon Valley Bank. Founded in 1983 in the heart of California's technology hotbed, this midsized bank was created to provide bridge funding to venture-backed high-tech and life science companies. Today, that one location has grown into 22 branches in the nation's technology regions and $4.1 billion in assets.

"We get involved in the first round of financing, and we can lend as little as $25,000 all the way to hundreds of thousands," says Harry Kellogg, vice chairman and head of strategic initiatives at Silicon Valley Bank in Santa Clara, California.

The other players in this category are:

  • Cupertino National Bank, a 15-year-old institution with $1 billion in assets and six locations on California's San Francisco peninsula. They've been lending to tech firms for five years.
  • Imperial Bank, a $6 billion Los Angeles-area bank whose Emerging Growth Division has offices in nine of the nation's technology corridors. They've been involved in high-tech lending for six years.
  • FleetBoston Capital Corp., a $185 billion institution that offers lines of credit, term loans, acquisition financing and bridge loans to computer programming and software companies, biotech firms, and computer hardware manufacturers.
  • PNC Bank, through its Venture-Bank, describes itself as a cross between a venture firm and a commercial bank. Working from four offices, PNC provides entrepreneurs nationwide with working-capital lines of credit, bridge loans, equipment financing and more. Early-stage firms must be investor-backed, and bridge loans are typically three to six months in duration.
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This article was originally published in the May 2000 print edition of Entrepreneur with the headline: "Trust Me".

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