Banc of California provides financing solutions to startups

Michael David of Banc of California - Podcast Transcript

Scott:	Welcome to Founders of Friends podcast with Scott Orn of Kruze Consulting, and today my very special guest is Michael David of Banc of California. Welcome, Michael.
Michael:	Thank you. Thank you very much. Nice to be here.
Scott:	My pleasure. So, we’ve traveled in the same circles over the years, and I think we met maybe like, God, I’m dating both of us here, 10 years ago or something like that, easily, but recently reconnected and we were just chatting about all the cool things happening at Banc of California. So, I wanted to have you on the podcast so you could kind of talk about it and the Kruze community could get to know you a little bit. So maybe just start by retracing your career and tell everyone how you landed there and why you chose to work there and what’s so special about Banc of California?
Michael:	So yes, speaking of dating myself, I did start in this business in the ’90s, kind of early to mid ’90s so in the.com boom, which was a blast. I actually started with a startup my brother had started, I joined him, I worked kind of in sales and then tried my own, which didn’t work, and was looking for a job and ended up at Imperial Bank, if you remember Imperial Bank. Imperial was kind of the only true competitor to Silicon Valley Bank at the time in the ’90s. And we were growing and hot on the space in Silicon Valley. So, I’ve been in Silicon Valley for almost 30 years now. And then I went to, they were bought by Comerica. I left and started Oryx Venture Finance Group.
Scott:	I didn’t know that. That’s cool.
Michael:	Yeah, which is a big Japanese finance company, so kind of put a stake in the ground here in Silicon Valley and grew that to a little over a billion dollar business. I had been with another bank called Bridge Bank for some time, started a fund finance group and kind of venture services group for them, and then joined Banc of California just January of this year.
Scott:	Oh, nice. So relatively new? That’s great, relatively new.
Michael:	Yeah. Banc of California is the combination of PacWest Bank, which is familiar to the market, and Banc of California, which is headquartered in Los Angeles. As you probably recall, the name Square One Bank was purchased by PacWest Bank, and that became the tech finance part of the equation. So really the DNA of our group is from Square One, which interestingly enough was a group that spun out of Imperial Bank that I worked for many years ago.
Scott:	Oh my gosh. It all comes full circle. Yeah, Square One was a powerhouse startup focused bank, and I remember when PacWest bought them. Yeah, so that’s great. And then I forgot your title, but you’re basically running West Coast? I forgot, but what got you so excited about it?
Michael:	It’s a building project. I’ve always loved building projects. I did it for Imperial, I did it for Oryx. I did it to some extent at Bridge, and I needed a new project. I’m at a point in my career where I have enough contacts and enough value I think I bring to the table. The team here is a great solid team, but we’re building it up. We’re also going to be opening a San Francisco office hopefully in Q4 so we’re expanding. We do have offices around the country. My charge is to run the West Coast tech practice based here in Silicon Valley, but the DNA has really been here for about 20 years. So, we’re not new. Bank of Cal is a new brand to this market, but really this is not a new practice. And you talk about what is interesting, I guess, about what we’re doing is we have a good, fairly lean team that will be growing over time focused specifically on venture-backed startups to do a variety of financing and banking needs. But we know what we’re doing. Really importantly is our credit culture is very focused on this, and they understand what happens in good times and bad. So, the credit team, our chief credit officer was the tech credit officer for Square One and PacWest, so definitely understands the ups and downs in terms of tech companies.
Scott:	Yeah. So, for those who don’t know, the credit officer is super important because a deal person could come to them and be like, “I’ve got the best startup ever and this is the terms I want to offer them,” but the credit person ask that basically underwrite it. It’s kind of like separation at church and state a little bit, to keep everybody honest. So having a good credit team, credit committee actually makes the deal people more successful and it helps the startups get better terms because if the credit person can understand what’s unique and special about that startup, they can get better terms.
Michael:	Yes. But also, if you think about it, I mean, banking is not rocket science, but it’s very much what I would call head to head in combat and relationship business. If you know who your banker is, and you can call them, I mean, something special about what we do is clients have the cell phone numbers of the whole team, the civic client manager, they’re not hitting 1-800 numbers. So, if something goes awry or something’s not happening, they can get it solved pretty quickly. And on the credit side, I mean, if you think about the credit officer, he or she needs to keep the portfolio healthy, which is very important. But also, from our side on the origination side, that has to respect the relationships we have in place.
Scott:	Yeah. Oh, so important, so important. Maybe talk about why that’s so important and what can go wrong there, just to illustrate the point.
Michael:	Sure. Well, you and I both have been through a few cycles here, Scott. This is a cyclical business, and in the debt side of it as well as the equity side of it. Sometimes things are up into the right and sometimes things have some difficult situations. So, the key is sticking with companies when things get difficult. So, an example would be if a company is running out of money, they’re having a hard time raising capital, they need to sell the company or sell the technology, what is their lender going to do? Are they going to sweep cash and put the company essentially into bankruptcy, or are they going to work with them through the sale of the company or through the sale of the technology? I’ve been through a lot of those, PacWest, Square One have been through plenty of those. So, we know how to act when that happens. It’s not a strong arm, we’re sweeping your cash. There are those that will do that. And I would say kind of a red flag is with so many new entrants in this market, some of the bigger banks particularly that are trying to get into the venture finance market, they haven’t been through a downturn and who knows how they’re going to react? And I’ll tell you with the venture capital partners I know, a lot of them are kind of suspect of that and saying, “We don’t know if we want to do that. What if things don’t work out? How are you going to react?” That is a big question in the market.
Scott:	Yeah. It’s really easy to come in with a bunch of term sheets and aggressive deals and buy market share, but the kind of nature of the business is like 18 months, 24 months later, some of those companies are going to struggle and you have to work with them and restructure or help them get more financing. And that’s where the new entrance can be really dangerous because they kind of clam up, I’ve seen this so many times in my career, they clam up, they lock everything down, they refuse to do restructures. And then these companies start dying because they need some help to get to the next round of funding so that everyone can win. So, it’s like the tourists don’t understand that and they get more scared, and because they’re doing such aggressive deals, their terms were out of whack anyways. And this is a vicious cycle. So, I really do advocate for working with people who’ve been in the industry for a long time. It just makes a huge difference, it de-risks your company in the deal.
Michael:	Yeah, I agree. And I think at the front end, particularly when things are going well and there are plenty of funding cycles, et cetera, it’s pretty easy. You scale off some terms, you work on some structures, you whatever, and here you go. Well, as you said, in 18 to 24 months, what happens when I don’t want to use, say AI is going to be the area, but let’s say that that market starts to stall and there isn’t a funding cycle that’s interested much, then what happens?
Scott:	Yeah, yeah, yeah. I mean, it’s so important. There’s a lot of startup founders to listen to this, so what are the products or the services that you offer? And how does it helped the startup?
Michael:	So since I’ve been here, we launched a new program actually in the spring, which is focused specifically on startups. We branded it Build at Banc, and our Banc of California is spelled B-A-N-C, people are like, “What’s that all about?” Well, it actually happens to be our stock symbol.
Scott:	Oh, I didn’t know that.
Michael:	So there is a reason. So, we call our startup banking program Build at Banc, which has basically free banking services for a couple of years for startups. We work with kind of seed and series A companies in there, and we’ll put together all the bells and whistles that you need to get going, as well as a bunch of partnerships for discounts on AWS, on some TriNet sort of HR services, things like that where we have kind of special relationships with those groups to help startups get launched off the start.
Scott:	That’s great.
Michael:	Yeah, so I mean, that’s a pretty interesting kind of unique product that we’ve launched. We are focused on very early-stage companies to start, but all the way through the cycle, we go all the way on up to IPO companies.
Scott:	Nice, nice. It’s the banking aspect of it, but then also the lending aspect. I mean, how do you think about the lending stuff?
Michael:	So if you think about what is venture lending, it really is leveraging equity capital. So as companies raise equity capital, to put in a line of credit alongside it that can be used as needed is just smart finance. Because a lot of the times those commitments aren’t drawn or they aren’t drawn for a while but you have that in your back pocket, which even for a series a company that raises, let’s say, $10 million, you can put in a line of credit, some sort of term debt, something that will help the company kind of get to the next round. And historically, companies that get a series from a well-known investor, it’s very high percentage gets a series B as long as they’re continuing to build, they have good investors, we’ve done our work in terms of vetting the management team. So, for us, it’s a way to help companies when they’re early and then help them get to the next spot. And then as companies grow on the debt side, we have kind of the full range of MRR type lines of credit.
Scott:	Oh, I didn’t know you guys did that, that’s great, yeah.
Michael:	Yeah, we also have kind of a true ABL financing group so if bigger companies are looking to leverage inventory and things like that, we have those capabilities.
Scott:	Do you guys do any equipment financing for biotechs or med tech companies?
Michael:	We do actually, an equipment finance group. Sometimes we’ll partner with some of the funds out there who do larger amounts and more of that sort of thing. But yeah, we are about close to a $40 billion bank. So, when we combine the two, we raised 400 million worth of new equity capital from Warburg Pincus and others, they took a board seat. So the interest is really into grow this thing, right?
Scott:	Yeah. Warburg is kind of one of the sneaky best investors, they do venture capital too, but they’re mostly a part of equity fund, but the people there are so smart. I’ve been impressed throughout my career anytime they interact with us. That’s great, that’s a huge endorsement for you guys.
Michael:	Yeah, exactly.
Scott:	Sometimes it’s tougher, especially first time founders where they’re doing this company for the first time and then they look back a couple years back and they’re like, “Oh man, I wish I would’ve done something different,” what do you see the regrets or a better decision they can make in terms of banking and lending? What are the issues you see people… What’s it called? A self-created error, or I forget that term, but when they mess up and it wouldn’t be so hard for them to see the light and do something else, but it’s hard to convince them, what learning points do you have out there?
Michael:	So I’d say don’t look just at the money, but look at the partner because that’s what’s going to stick with you long term. I mean, a number of the fintechs are going after startup companies, but you don’t have a contact with anybody really, it’s all just online. Further on down when you want to raise debt or do something like that, they’re not in that market. So, it’s more like don’t necessarily just go the easy cheap route upfront, think about it. Just like, I mean, would you get an online attorney to do your incorporation for a startup? Some do, but it’s probably not going to serve you well in the long term.
Scott:	Yeah. I also think extending that advice to the people, actual specific people you’re dealing with at the bank, because there’s a difference between someone who’s been in the business, seen some cycles, you have a better perspective on what’s really happening in a company than getting maybe someone who doesn’t have some experience or who’s a tourist who’s going to shut down and ask questions later kind of thing, makes a big difference. So, you need to have that personal relationship. I tell people almost every startup goes through some rough patch, even the best startups go through rough patches. And so having that partnership is really, really valuable. And it starts with a person. It’s not so much the institution, although that’s important too, but the person who’s going to bat for you internally at the bank or lender is really important.
Michael:	Well, and just like your business too, Scott, I mean, it’s the same, right? You got to put in the right structure, you got to have the right people to deal with, you got to have someone you trust and somebody you can call, not just someone who you’re trying to bang through an 800 number or something of where you can’t get an answer to something.
Scott:	I totally agree, totally agree. And I got to respect your time here, but if someone wants to reach out or hear the pitch, is it go to your website, find you a LinkedIn? How would you recommend they get in touch?
Michael:	Sure. I mean, I do. I’m pretty active on LinkedIn. It’s Michael David, I think it’s under Michael L. David. Email is michael.david@bancofcal.com, B-A-N-C-ofcal.com. And so yeah, reach out to me. Certainly. I mean, websites, it’s kind of hard because you go through that sort of process, but yeah.
Scott:	An email or LinkedIn Works is what you’re saying, yeah.
Michael:	Yeah, it works for me. And then one of my team members. I have a team here in Northern California, I have a team in Southern California, and we’re actively recruiting good folks.
Scott:	Awesome. That’s also great to hear. Yeah. If there’s someone out there who’s a professional who’s listening to this, ping Michael and the crew at Banc of California. Well, Michael, it’s awesome to reconnect and you guys were doing cool stuff there. And I’m happy for you, I remember we were talking and you were about being a builder and you definitely had the light in the eyes where you’re like, “Yeah, this is cool.” I mean, it’s a great platform too. The thing we see with SVB having gone through what they went through, there’s a lot of opportunity, there’s a lot of fragmentation. This is the time. I’m sure it’s a great feeling for you. All right man, well congrats, thanks so much for your time, really appreciate it.
Michael:	Yeah, thank you, Scott. I appreciate it. Take care.
Scott:	All right.
Michael:	Bye.

Banc of California provides financing solutions to startups

Explore podcasts from these experts