Citizens Private Bank delivers tailored banking to startups

Sam Heshmati of Citizens Private Bank - Podcast Transcript

Scott:	Welcome to the Founders and Friends podcast with Scott Orn at Kruze Consulting. And today, my special guest is Sam Heshmati of Citizens Bank. Welcome, Sam.
Sam:	Thank you for having me.
Scott:	Great to have you. We’ve known each other for a long time. I think we got a little closer lately, but instead of stealing your thunder, maybe just introduce yourself and retrace your career a little bit.
Sam:	Yeah, yeah. I’ll be relatively quick, but I was actually born and raised in the Bay Area, started my career right after school. Funny enough, my co-founder of the practice at First Republic, Samir Kaji, was the one that recruited me over to Silicon Valley Bank in the early 2000s. And candidly speaking, I didn’t know I wanted to be in venture or startups, but at the time, he told me, “They’re basically hiring anybody with a pulse. You should come check it out. It’s pretty cool.” And so, I decided to take a flyer, took an interview, ended up landing there. Spent a few years there, obviously, as an analyst early on in my career, and then had a unique opportunity to go participate in a program with Richard Branson for a couple months and learn about entrepreneurship from a different lens and really, really close to somebody who’s had a lot of success doing it. And came back and felt like I needed to challenge myself a little bit more to get outside of my comfort zone. And at that point, a couple years later, I was trying to figure out what that was going to look like. I ended up landing at Square One, which was a new bank at the time, that launched to essentially compete with Silicon Valley Bank. And so, I joined, spent some time there. It was a great experience for me because I got to wear a lot of different hats, essentially a startup bank in a lot of ways. And then Silicon Valley Bank recruited me back to their fund banking practice, and that’s where Samir had joined and helped lead the team. He said, “Hey, why don’t you come back here, focus on the venture side? There’s no better place to do it.”
Scott:	Wait, Samir is a former Kruze client at Allocate for I think three years. And then they started getting big and complicated, and so they’ve brought it up. Super nice guy.
Sam:	Great company, and he’s a great guy, and I have a lot to thank him for over the course of my career.
Scott:	He’s awesome.
Sam:	That’s a different topic in and of itself. But no, he’s been a great mentor to me. And so, when he brought me back, the two of us found that we were in a unique time in the venture ecosystem where there was this emerging fund community that was building, it didn’t even have that name. It was super-angels or micro-VCs. And Samir and I would spend hours and hours whiteboarding about where we thought venture was going to go. And we both agreed that we thought there was going to be a new category in venture that was going to be filled up of these emerging managers. And so, we started that practice at Silicon Valley Bank in the early days and the initiative there, and then essentially joined First Republic to bring together the best of both of our backgrounds, which was working with founders as well as the venture community. And we launched the early-stage practice at First Republic back in 2012, which included emerging VC as well as the innovation banking side of things. So banking, early-stage companies. Really proud of the work we did there. We spent 12 years there, built out an offering that ended up being a national practice on both the early-stage fund side, but as well as the startup side. And I think in a lot of ways built the other bank that you could consider as you were thinking about options. It was SVB for so many years, and then other banks sprinkled around the edges. And I think what we were proud of was, it took a long time to get there, but we ultimately got to a point where the community was saying, “You should work with SVB or FRB.” I think that’s where we knew we had done something right. And then obviously, the events of last year forced me to have to reevaluate what this next chapter was going to look like, and we can touch on that more, but felt very proud of the work we had done and decided it wasn’t time yet and wanted to continue doing the work. And we were fortunate enough to land at a platform like Citizens.
Scott:	The other part of that SVB FRB thing was you guys were known as the white glove service, like the people who will call you back in five minutes kind of thing. And we banked with First Republic. You guys were phenomenal with us, and we promote you guys heavily because you guys were just great with the clients. For startup founders, when you’re running out of cash or you need a wire or the funding round’s getting messed up, there’s a lot that can go wrong, and being able to pick up the phone and call your bank is really, really important. And that’s what we loved about you guys, and we did the same thing. And that’s what I’m excited about with Citizens, too. It sounds like in our conversations, you’re bringing that to Citizens, which to me is like the winning formula. There’s always going to be someone who doesn’t want to talk to the clients, low touch bank out there. I think there’s a lot of opportunity for the, “Hey, we actually want to talk to our clients and help them,” kind of bank. So, I think that’s what you’re building there.
Sam:	Yeah, it is. And look, we actually think it’s a little bit of a combination of both. A lot of folks say it’s just software and technology. Some will overemphasize relationships. For us, we think the definition of great service isn’t us telling the market what the market needs. It’s providing a bespoke experience. We’re certainly going to have some that never want to talk to a banker, and we want to have a platform that allows for that. And then there are folks that want more of the advisory work, the high touch service, et cetera, and we have the team to do that. And so, I think we are focused on bringing both to market, which is probably a step above even how we thought about it at First Republic was where there was an extra emphasis on the relationship side. Not to say we’re going to compromise any of that. We want to build on that, but we just found that that model that you just highlighted, and you highlighted a few events, funding round money, et cetera. In a funny way, in FRB’s darkest time when we were going through the bank run is where our model actually stood out the most because it’s when human psychology kicked in and people were panicking and trying to do something via software. People wanted to talk to people. And so, we just found that what we actually do showed itself and the value and importance in a very extreme case, obviously, in that darkest time. And I think that’s why we had so much conviction that we had to continue to do that type of work is because it was validated. We say, “Look, this is a need. This is a must have.” And if we can couple it with the technology side, you can bring the best of both worlds together and give the community what they like.
Scott:	Yeah, I think those people who think they don’t want to talk to a banker ever and just use the website or whatever, that they’re typically very early stage and haven’t really hit any complexity yet, often first-time founders, and there’s nothing wrong with that. You got to learn on the job. And Vanessa and I have certainly learned on the job over the last 10 years, but you realize quickly that it’s like you don’t like government until there’s an earthquake or a hurricane or something like that, and then you need some help. It’s the same thing with your bank. Something gets weird, you want to be able to pick up the phone. You’re right, I remember that night. It might’ve been the night before SVB got saved or whatever happened to SVB. I was on the phone at 10:00 at night with someone at First Republic making sure that our money market fund was off balance sheet and everything was fine. And I’m eternally grateful to those folks. And I could hear the background, it sounded like everyone was in the office eating pizzas and drinking coffee late night because I could hear the chatter behind everybody. So, it was crazy.
Sam:	It was Like war rooms going on in the background.
Scott:	Yeah, exactly. Exactly. So, you’re right, people did. But anyways, so talk about Citizens a little bit. When we talked maybe a month ago, you were talking about your criteria, because you didn’t want to jump around. You wanted to land at a really solid place, and I think you brought a big team with you. But what was your criteria, because I thought that was super interesting?
Sam:	Yeah. Well look, we were fortunate in that the events of First Republic obviously took some time to play itself out, and we were evaluating. And then I was working within the period of receivership with JP Morgan and First Republic to figure out if I was going to accept an offer there. So, there was an opportunity to really evaluate things. I didn’t have to make a decision. I didn’t want to make a decision that felt panicked in a lot of ways. We knew that we had a responsibility because the process of evaluating a bank going forward was going to look different for all startups and venture funds as well. And we had a responsibility of landing at a place that we could stand behind that would allow those people to feel like they were being responsible banking with us. And if we went to the first choice or the easiest choice, it wasn’t necessarily going to make it the easiest choice for our underlying client. So, it goes back into that client centric approach. So, basically, I evaluated it as if I was going to evaluate it as a future client coming to market. And I looked at the different things, the dominoes that may fall. And number one, Citizens… I spoke to over a dozen different banks that were interested in this business, and it stood out. And I’ll say number one, one thing that stood out was the deposit composition was very different from First Republic and SVB. And you look at SVB, I think it was around 10% insured deposits. FRB was 30%. And to be clear, and I clarify this because a lot of people get confused between First Citizens and Citizens, obviously. First Citizens is the bank that ultimately took over SVB. Citizens, different Rhode Island-based, headquartered, very well known among the East Coast, but much larger bank as well, is about a $220 billion bank, and 70% of the deposits are insured.
Scott:	Wow.
Sam:	So we looked at it and said the flight risk associated with these deposits are far less, and Citizens deposits have actually been up since the bank run of last year. So, for me, I looked at it, and that was number one is how stable is the bank as a whole, and I walked away saying, “Okay, great. This is a great start we’re off to.” Number two is I tried to think about what is the next headline. We weren’t through the strain of the regional banking sector, etc. And I looked at it and said, “Okay, I personally think just based on what I’m hearing, obviously commercial real estate’s going through a lot right now. What impact is that going to have on Citizens as an organization?” And I looked at it, and I’m not a commercial real estate expert, but had some folks look under the hood that came back and said, “There’s a difference between multifamily homes versus office space, etc.” And the long short was is most banks out there have exposure to commercial real estate. That’s not something that I think is going to get Citizens in hot water. I think they have a strong commercial real estate portfolio. And so, another great signal to say, “Okay, this is a bank that has been around for a couple hundred years, has gone through some changes obviously, but you look at it and say they are poised to be able to weather storms.” And in some ways where FRB and SVB, the growth was steep up and to the right, in some ways, it was kind of just grow, grow, grow. Citizens has taken a little bit of a different approach. It’s been slower and steady, which I think provides a little bit more just stability with respect to the period of time that we’re going through right now. And I looked at that and I coupled that with the culture, the people that I met in the entrepreneurial environment. I said, “This looks and feels a whole lot like what we’re used to and what we feel needs to exist to be able to build on a new platform,” and ultimately made the decision to join.
Scott:	That’s incredible. For those who don’t know, 70% insured is a high number. And what that means is people don’t have to get nervous if there is the beginnings of a bank run because they know they’re insured, and so they don’t have to leave. They don’t have to pull their money out because they know they’ll be fine no matter what. So that’s a really big deal. And then the commercial real estate thing, I think is fa-… You’re the only person that ever mentioned that to me when they were looking at new places. And that’s so smart. I feel like that’s still in the second inning or third inning or whatever. It’s like we still haven’t really had that much fallout yet, but we’re starting to see buildings, the investors just give the keys back to the lenders or things like that. That’s going to happen over the next couple of years.
Sam:	Yeah, but the thing is, I think commercial real estate historically just gets painted with one brush.
Scott:	That’s true.
Sam:	You’ve got to look under the hood and understand the details around it. And I think that actually that’s an important part with all parts of banking, even just banks in general. Startups evaluating any bank is look under the hood and understand that strength and stability. It’s more important to understand it. And not to get specific about any banks or fintechs or anything, but even with non-banks that are out there, it’s like, “Look under the hood and understand what it is that you are getting into.” You have a fiduciary responsibility to all of your investors to make sure you’re going through that process. And so, we just wanted to make sure we were doing the same thing. And that was part of something that a lot of people haven’t talked about. But thankfully, I have a lot of smart people that were willing to help me figure out how to navigate this. And it was definitely brought up.
Scott:	Yeah. Well, maybe you could talk a little bit about Citizens, the product portfolio, the service portfolio. What can you do for startups? You’ve talked about technology, you talked about the service level. How do you operate the cash management part of lending, their portal? What does Citizens bring to the table?
Sam:	Yeah, a lot. It’s a little bit of a loaded question.
Scott:	That’s good, that’s good.
Sam:	Yeah. No, no, that’s what we want. Look, number one is it brings a very familiar team. So again, we’ve brought over 200 former First Republic folks, and that represents folks that are on the relationship side, that represents operational folks, that represents marketing for an exchange. So, I think we feel fortunate that a lot of the community can actually look up and down the team and say, “That’s actually basically the team that I worked with historically on a day to day from a strategic standpoint,” et cetera. And for us, that was important. I think one nuance that a lot of people don’t pay attention to is, and sometimes it’s confusing, is the term private bank. So, there’s Citizens and then there’s Citizens Private Bank, which is where I’m housed. It was important to us that we were going to be able to continue to service, not just do the same work, but it’s the way you do it, the operating model. And so Citizns was so bullish on the high touch white glove service that First Republic historically had provided that it created a new division within the Citizens umbrella, which is Citizens Private Bank that housed all of the former First Republic folks and is adopting the same operating model of First Republic.
Scott:	That’s really interesting.
Sam:	So that single point of contact just over the course of the entire relationship, instead of trying to contact five different people to get something done, you go to that one person and it gets done. So, number one is the definition of private bank. I think a lot of times if you look across the country with larger banks is more associated with a product offering. Your minimum this, this, and that. For us, it’s the experience. It’s a private banking experience. So, what you have is private banking. It’s that white glove experience that’s traditionally known for, let’s say, high net worth individuals. We’re taking it and we’re applying it to consumer personal banking as well as business banking. And so, I think that’s very different than what the market has seen today. And I think one thing that’s fundamentally different between, I’d say most of the other players, if not all, and what Citizens Private Bank is offering, is we have the personal private banking offering as well for the founder and VC community. So, I’d say we’re less product driven, it’s more experience driven and solving for needs. So that doesn’t mean we don’t have the products, it’s just there’s so many different things that we can do to help any given client, that we’re not measured. Our success is not measured on selling a mortgage or doing venture debt. Certainly we can help around the edges on all of this stuff, but it doesn’t necessarily mean that we have to. So more of what we do is listen and just basically try to step in and make the founder’s life as easy as possible.
Scott:	Yeah, that’s really smart. Well, I was just going to say, I think that’s super smart. And also, for those that don’t know, it’s nice to have your business plus consumer tied together, because especially if you’re an entrepreneur. So, if you’re a startup founder out there listening to this, because at First Republic, Vanessa and I were able to get a loan to buy a house. And historically, when you’re an entrepreneur, no one wants to lend to you because you usually don’t make that much money relative to what you could make in the outside market as just an employee. And a lot of your net worth is tied up in ownership and things like that. And in banks historically, like to lend to a W2, your income. But when you’re entrepreneur, your income bounces around, things like that. So having that perspective of being able to see, “Hey, you’re doing some really interesting things over here on the business side,” and yes, it’s probably a time you want to have kids and buy a house and things like that, that really helps you actually, and that’s cool. I didn’t know that you were able to do that in the Citizens Private Bank, but that makes a ton of sense to me. That’s really valuable.
Sam:	And so the key thing is we are not a bank of just putting information into software and then it says approved or declined. We’re the game of trying to understand the people that we’re working with. And even if something’s not available to somebody today, it’s helping guide them to say, “Here are the things that you need to do, and here’s ultimately the bar you need to get over to be able to get a mortgage for your first home,” or anything like that. “And by the way, we’re here along the way to guide you and advise you, whether it’s on your company, financing associated with company raises, stuff like that, or it’s your personal side. We have that expertise in house to fundamentally be able to support you.” And I think he key thing is not for a short period of time, I think a lot of founders make quick decisions because they’re not thinking about the future. It’s what’s the easiest thing right now? Changing banks is a pain in the butt. You know it.
Scott:	It sucks or us. It sucks for you guys.
Sam:	Yeah. It’s disruptive. So, what you want to do is find a bank that you can work with at inception that can grow and scale with you for your entire lifecycle. And I think that’s what we take a lot of pride in having done at First Republic and doubling down and doing even more of it. And with our commercial banking offering, our investment bank, we actually have an enhanced, broader offering across the entire Citizens platform than we even had at First Republic that can help companies at the different stages.
Scott:	That’s amazing. I love it. It really is. And I focused on the consumer benefits to having your business and consumer tied together. But you’re right, there’s a ton of business benefits that just having that relationship. You tend to have a stronger relationship or maybe not tend to, but when they’re merged together, you just really build that relationship. You know who your banker is, you talk to them way more often when you’re doing both. So that makes a lot of sense.
Sam:	Yeah. You get to know your clients. And look, just an example is as a company goes from Inception, a few co-founders, to raising their initial round, we also work with a ton of the venture community. So, we get to guide and provide best practice similar to how you guys differentiate from many others. You have your core services. Then there’s the expertise you bring around the edges. So, when you go from zero to one, or one to two, two to three, just from a stage of a company, you’re raising financing, et cetera. These are the things we step in and provide guidance on. Here are the things that the investor community is looking for. If you’re looking to layer on some debt, we are a little bit different in our model relative to other banks. A lot of other banks will lead as a core product for venture debt. That’s actually what their success is measured on, is how they deploy capital there. We have venture debt lenders on our team that have been doing it for decades who don’t get measured on doing venture debt, but they can still help solve for problems like that. We have network of partners that want access to all of these companies. We’ll go through and actually figure out, is venture debt appropriate for you? Is that something you should take on? What are the options that you have outside of the few no names that everybody talks about? There’s a world outside of those names. So, we actually roll up our sleeves and think of ourselves at the very early stages, in particular for founders, as an extension of the team. And then ultimately, they raise money, they add a board. We define our success by not being needed anymore. That means we’re able to help propel the companies to a place where they now have all of that infrastructure built out. We just know we did a small part to help.
Scott:	Yeah, that’s awesome. And we’ve got to wrap up here in a second, I want to be respectful of your time, but do you guys do fund banking, too? I know you’re doing the startup stuff, but are you working in funds?
Sam:	Yeah, we are. I’d say phase one of our launch was actually with the fund banking side. So, we’re up and running. We’ve already started onboarding quite a few funds onto the platform. We provide capital call lines. We do the management company facilities, GP facilities, financing is coming as well. We are not just coming to market. I’d say we’ve been in business a couple quarters now, finished our first quarter in business with $1.3 billion in assets and finished our last with around $2.4 billion.
Scott:	Wow. Amazing.
Sam:	Yeah, we feel good about it, but I think the most important thing about it is it’s an indicator that what we’re offering, there’s product market fit and there’s clear demand for what it is, and we have the product set. They can support the community from individual to their companies, to their funds, whatever it may be. Within the innovation and ecosystem, we have the full suite of services they can ultimately step in and help folks out.
Scott:	That’s great. Also, it sounds like you got over that early adopter hump, too. $2.5 billion dollars, no one has to be nervous of being the first one in the pool kind of thing.
Sam:	Exactly. We’ve figured out some of the kinks along the way.
Scott:	Yeah, that’s great. That’s awesome. Well, maybe you could tell one if they want to reach out, how to reach out to you, how to find the Citizens Private Bank LinkedIn.
Sam:	Yeah. Yeah. Citizens Private Bank has a LinkedIn page. You’ll see the logo is black and white. If you’re trying to figure out if you’ve found the right bank as a whole, you can reach out to me at sam.Heshmati@citizensprivatebank.com. I have a team of 30 people here that are ready and willing to roll up their sleeves and help the community out. So just let us know. We’d be more than happy to get involved and support.
Scott:	I love it. Thank you for telling the story. It’s a really good story, and I’m psyched that you have such traction already. That’s a big number that you’re managing, and I know it’s going to get even bigger. So, Sam, thanks so much for coming by. I really appreciate it, man.
Sam:	Thank you. Just the beginning. We’re excited.
Scott:	I love it. I love it. That’s how it starts, right? We’ve all been there.
Sam:	Right on. Thanks for having me, Scott.
Scott:	Thank you.

Citizens Private Bank delivers tailored banking to startups

Explore podcasts from these experts