Regional Banks Courting Start-Ups and Venture Capital Firms

So where does a fast-growing Southern California business go after getting its first big check from a venture capitalist? Think someplace boring, like straight to the bank.

Several regional banks are vying to establish relationships with companies as they receive their first round of venture capital money. After getting a foothold, the banks want to continue their relationship with those firms as they grow and become successful.

That’s why three banks--Imperial Bank and City National, both based in Los Angeles, and Santa Clara-based Silicon Valley Bank--are adding more people and more resources to pursue Southern California’s venture-backed companies and schmooze with its venture capitalists.

“Our business is booming, in part because of the growth in venture capital investments here,” said Christopher J. Woolley, senior vice president of Imperial’s emerging-growth division.

Imperial, one of the area’s two giant regional banks, with $6.2 billion in assets, started the division with an office in Silicon Valley but has gone national. It has about 100 employees in offices in Austin, Texas; Boston; Seattle; Southern California and northern Virginia.

Woolley often works with such venture firms as Newport Beach-based Enterprise Partners, Brentwood Venture Capital of Los Angeles and Irvine-based Crosspoint Venture Partners in financing young companies. Imperial was an early investor in Idealab Capital Partners, the Pasadena venture fund.

Typically, a venture capitalist will invest $500,000 to $15 million in a start-up. Woolley said that in the most conservative deals, Imperial, like other banks, will typically provide one dollar of bank-type debt for every three dollars of venture capital equity a company receives.

Imperial has established banking relationships with such online ventures as MP3.com, the San Diego-based music distribution firm; Net Effect, a North Hollywood e-commerce firm; and IPNet, an Irvine Net services firm.

Imperial is careful not only about the companies it lends to, but about whom it hires, said Woolley, who grew up in Manhattan Beach and has watched this region’s economic ups and downs.

“We’re dealing with high-risk situations and very sophisticated people in the venture community,” he said. “If you hire some rookie and send them in there, [the venture capitalists] will chew them up and spit them out.”

City National, the second regional giant, with $6.4 billion in assets, is attempting to gain market share in venture lending.

Beth Kinsey, a senior vice president with City National and formerly of Silicon Valley Bank, heads the banking services division for emerging-growth companies, formed two years ago. The division’s new office, with eight employees, will open May 10 in the Irvine Spectrum.

The bank provides such diverse services as equipment leasing, tenant improvements and strategic planning.

“Underwriting these types of companies is very different from your traditional types of middle-market lending. You can’t look at profits or track records--you look at management, you look at product,” she said.

Kinsey said the bank’s growing size is among its assets, because a company can stay with the bank as it becomes larger and perhaps goes public through an initial offering.

Silicon Valley Bank, a business bank that specializes in funding for high-tech companies, plans to open a loan office in Westlake Village this week with three employees, according to Terry Bess, regional manager of the technology and entertainment lending group. The firm already has 10 employees in West Los Angeles.

“A lot of times we get involved before the venture capitalists come in, but as far as bank debt is concerned, it would come with the first VC round,” Bess said, meaning the company would provide banking services such as small loans and checking services to an early-stage firm.

After a venture capital investment, Bess said, Silicon Valley Bank will typically provide working capital, lines of credit, equipment loans and leases.

“This is all we do--70% of the bank is focused on technology companies. We have deep and strong relationships with the venture capitalists,” Bess said. “We’re not a retail bank--this is what we started out doing.”

Most of the bank’s relationships have been with Northern California firms, but Southern California is becoming an increasing focus, though the bank opened its first office here nine years ago in Orange County.

The firm has 400 clients in Southern California, Bess said, and with the new Westlake Village office will have four offices in the region.

Clients include EToys, the Santa Monica-based online toy seller, and Stamps.com, also based in Santa Monica, which plans to deliver postage via the Internet.

“E-commerce and the whole Internet side here has really gotten active” in Southern California, Bess said. “There is a lot more opportunity here.”

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Opportunity is the key word this week for Goldman Sachs Group, the privately held investment banking partnership, which is expected to launch its long-awaited IPO today or Tuesday.

The Wall Street giant has demand for almost 10 times the number of shares it plans to sell, at an estimated $45 to $55 a share. Still, in its IPO filing, the firm revealed that authorities are investigating allegations that Goldman Sachs and other securities firms illegally conspired to fix underwriting fees charged in initial public offerings. It is unclear how that news might affect the stock sale.

On Friday, Goldman disclosed that it received a civil subpoena seeking information from the Justice Department.

In other IPO news, Santa Ana-based Corinthian Colleges Inc., one of the largest operators of vocational schools, saw its shares jump Friday after it reported better-than-expected third-quarter earnings and its enrollment increased.

In heavy trading, the shares rose $3.63 to close at $16.38 on Nasdaq. Earlier, the shares touched $19.75. Corinthian went public in February at $18 a share.

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Times wire services were used in compiling this report.

Times staff writer Debora Vrana covers investment banking and the securities industry. She can be reached at [email protected] or at Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.