Choosing a Bank

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Choosing a Bank
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The Basics
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The Basics

• Debt versus Equity
• Choosing Your Banking Partner
• Traditional Banking
• Venture Banking

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Debt vs. Equity
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Critical Questions

• What do you need to finance?
• What is the required time frame to finance your
  need?
• What constraints do you have as a corporation?
• What controls concessions are acceptable to
  your firm?

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What Are My Needs?

• What do you need to finance?
• RD
• Administrative Staff Expansion
• Marketing Roll Out
• Equipment Purchases
• Acquisition
• Intermediate Working Capital Growth
• Inventory Build Out
• Shortening A/R Collections
• Bridge to an Equity Event

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What is the Desired Time Frame?

• Long- Intermediate-term (over 18 months)
• Equity Retained Earnings
• Subordinated (mezzanine) Debt
• Long-term Bank Debt
• Short-term (less than 18 months)
• Short-term Bank Debt
• Short-term Investor Debt
• Trade Credit

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Match Funding

• Stock Retained Earnings Subordinated Debt
• Long-term Bank Debt
• Short-term Bank Debt Debt
• Trade Credit

• RD Administrative Expansion Marketing Roll
  Out Inventory Build Up Acquisition
• Equipment Finance Intermediate Growth in Working
  Capital Acquisition
• Short-term A/R Growth
• Short-term Inventory Growth

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Constraints

• Ownership Issues
• Valuation Issues
• Legal Roadblocks
• Corporate Structure Issues
• Personnel Issues

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Controls Concessions

• Ownership
• Board Appointments
• Debt to Equity Conversion Rights
• Intellectual Property as Collateral
• Covenants
• Warrants

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Picking Your Bank Partner
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Keys to Picking Your Banking Partner

• Can they meet your critical banking needs now?
• Do they understand the dynamics of your business?
• Are they committed to serving the technology
  community?
• Does there exist any internal/external
  constraints to product delivery?

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Critical Bank Services

• Deposit Services
• Cash Management
• Investment Services
• Foreign Exchange
• International Collections

• Equipment Loans
• Lines of Credit
• Bridge Loans
• Letters of Credit
• Asset-Based Loans

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Types of Banks

• Community Banks
• Business oriented
• Real estate oriented
• Upscale Private
• Large Banks
• Regional
• Super-Regional
• Merchant Banks
• International Banks

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Traditional Banking
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Underwriting Criteria

• Two or more years of profitability
• Cash flow positive
• Strong Balance Sheet
• Prefer larger deals
• Loans used as a loss leader for other services

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Venture Lending
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What is Venture Lending?

• A focused effort to provide the client a
  three-dimensional, value-added solution to their
  financing need on a timely basis.

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Value-added Services

• High-quality services at a low cost.
• Easily accessible by a computer-literate client
  base.
• Services which help the client manage their
  business more effectively.

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Value-added Debt

• Debt which is available to support a companys
  growth.
• Debt which is available to help the client manage
  its cost of capital.
• Debt which is governed by a structure that allows
  the company to focus on their business.
• Debt which is available to help the client
  establish vendor credit.
• Debt which allows the shareholders to potentially
  enjoy higher returns on investment (i.e.
  shareholder value added).

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How is debt made available to early-staged
companies with minimal tangible assets?

• Valuation Lending
• Make debt available to a company based primarily
  on the valuation of the company (i.e. the third
  party valuation of the intellectual property).
• Keep the debt amount in a low relative proportion
  to the companys overall post-money valuation.
• Lend only into early stage companies.
• Lend into companies supported by top tier
  investors and understand their business
  motivation for financing the company in the
  future.
• Lend into companies with strong, credible
  management teams.

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Underwriting Criteria

• Modest leverage (1.50x or less)
• Acceptable liquidity (QR of 1.0x or greater)
• Tracking to plan
• Investor support
• Confidence in management.

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Active Banks in the Silicon Valley

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• Silicon Valley Bank
• Cupertino National Bank
• Imperial Bank

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