How to identify the right banking partner for your technology company
December 08, 2016
Since 2009, there has been significant growth in the number of new technology companies as a result of an increased amount of capital available to entrepreneurs through venture capital, growth equity and corporate investment.
Technological advances have made it easier for companies to create and scale their businesses, and has contributed to the amount of new tech companies present today.
But what about the actual business of creating these innovative products? Most startup companies face a plethora of administrative challenges. Investor-backed technology companies typically have a finite amount of time and capital to create value and attract subsequent equity investment. As a result, they are forced to be thoughtful when selecting service providers.
Smart Business spoke with Peter Haman, Vice President and Relationship Manager for the Technology Banking Division at Bridge Bank, about what technology companies can do to identify a suitable banking partner.
Where should technology companies begin their search for a bank?
With over 6,000 banks in the U.S., there are only a handful of banks that provide complete banking services to technology companies and even fewer that do it consistently.
Within the small group of banks that do provide treasury and credit services to technology companies, many dedicate more time to providing services to investors or the investors’ funds. Technology companies need to consider a bank that has a primary focus on what it does rather than those banks that support the broader technology industry.
Second, once the companies move beyond the limited scope of banking options, there are a number of operational challenges that are unique to technology companies. For most seed to early-stage companies, the primary goal is validating the product or business model through an initial product launch or through early sales traction.
Given these goals, combined with the traditionally limited resources these businesses have to employ a full-time finance professional, banking becomes a low priority for early technology companies. Having a banking partner that has the experience to recognize these priorities and can help guide the founding leadership team is important.
Equally important is selecting a business bank that has an intuitive platform and a responsive relationship team that acts as a trusted counselor to the leadership team.
What happens as the process to grow the business moves ahead?
As technology companies validate their business models, the priorities for the business often shift to boosting sales as a way to attract further investment.
Scaling rapidly can create several operational challenges. So the third piece of the puzzle should be to find a bank that can identify the business’s growth trajectory and proactively recommend treasury solutions to help address and automate part of these operational burdens.
During this same time, business banks are able to begin extending credit given a company’s sales traction or capital investment by institutional investors. The type of credit most often provided solves two main challenges with scaling companies: working capital and runway extension to the next equity event.
Technology companies should seek out a banking partner that can tailor credit solutions to the business objectives and anticipate future capital needs.
Finally, when technology companies begin to reach scale and they can dedicate more time to long-term objectives, their banking partner should be strategizing and collaborating with the leadership team to ensure the appropriate products and services have been implemented to meet these long-term goals.
A bank specializing in technology businesses should be able to assess an organization and recommend account structures and services to best meet the client’s needs. The type and amount of credit a bank can extend impacts a later stage technology company’s ability to execute on strategies or implement cost-effective capital solutions.
Most technology companies are challenged with universal issues whether it’s fundraising or solving growing pains. An experienced business bank should be able to identify these challenges and deliver the appropriate solutions no matter the life stage or market segment that applies.