Capital access

Capital access

How do bankers raise money?
Work the phones, Signature founders say

by Beth Ewen  

Take note if you’re a business owner who gets uneasy when approaching bankers: Some of those bankers are entrepreneurs, just like you. A wave of mergers in the banking business has brought new large players to town, such as M&I Bank and Associated Bank. The purchases have also spawned start-up banks, usually begun by executives of the purchased banks who don’t enjoy the big-bank atmosphere. Crown Bank and Venture Bank are two examples in the last few years.

Upsize talked to the latest of these entrepreneurs, Ken Brooks, president, and Leif Syverson, executive vice president, who started Signature Bank in Minnetonka last November, after Century Bank was purchased by M&I in late 2001. They tell how they raised twice the typical equity investment for their bank, and how they’ll try to hit a blistering growth rate, to $40 million in assets this year.

Upsize: Why did you start a bank?

Ken Brooks: Part of it was our environment at Century. Management there was made up of successful entrepreneurs. It was different from a lot of bank environments. They empowered us to make our decisions.

Leif Syverson: We both really enjoyed the environment at Century. Not everybody that gets acquired can say that about their ownership. We were charged every day with running and growing the business. When M&I came in — and not to knock them at all, they’re great people — but the way big is, that’s the way it runs.

Brooks: Big isn’t necessarily better. We made the decision to form a startup organization.

Upsize: How did you raise so much money last year? I thought capital was hard to come by.

Brooks: One of the biggest challenges is access to capital. We weren’t born with a silver spoon, so we went out to raise capital. That turned out to be a non-event. We raised $8.4 million.

Syverson: Bankers aren’t giant risk-takers, that’s true. We went back to our owners at Century, who we knew had connections to affluent Twin Cities business people that would invest. We were borne out in that assumption.

Brooks: Part of it is the banking industry. It’s been solid forever. It’s not a business built on the hottest medical device. We were offering $100,000 to $300,000, minimum to maximum investment. It’s not the last 100 grand that these investors have.

Upsize: Isn’t that more than other start-up banks have raised?

Brooks: A year and a half ago Venture Bank raised $8 million. The average footprint is about $4 million.

Syverson: If you look at Venture Bank, those people came from Riverside Bank’s sale to Associated. They’ve got a great story to tell coming out of there, a proven leadership group.

Brooks: The more capital you have the higher your lending limit. Ours is $1.25 million.

Upsize: Are you focusing on lending to certain industries?

Syverson: We’re not industry-focused. We think there are good operators and bad operators in all industries, although we do have a lot of background in real estate. One target would be in sales; we’ll target companies with $2 million to $15 million in annual revenue. A secondary measure is total lending volume, and we’d target $250,000 to $5 million with each customer.

Upsize: How are those companies doing in the early part of 2004?

Syverson: There’s a little gap, in that we left Century in the fall of ’02 and started collecting data with Signature in the fall of ’03. But more people were struggling at Century. Now it seems that they’re doing better.

Brooks: Even in talking to business owners, most people are saying business is better, whether it’s revenue that’s up or they’re better able to manage their finances. Since the last quarter of ’03, most businesses have seen an uptick in sales.

Upsize: What do you look for when deciding whom to lend to?

Syverson: There’s one thing, you sitting there telling the story, how you personally articulate it. And the other is the financial side. Do you have a package that is well thought out and complete? The most successful customers, typically they’ll have a team of advisers, including an accountant and a lawyer, to help them put this together.

Upsize: What is your growth plan for the bank?

Brooks: Our goal is to get to $40 million in assets by the end of the year, and to $90 million within five years.

Upsize: How will you do that? That seems high.

Syverson: A lot of phone calls.

Brooks: A lot of hours. We have existing relationships. We’re going back to a circle of influence, attorneys, accountants. We’ve been in the business for a long time.

Syverson: Compared to the average growth rate it’s well above. It’s in the ballpark of our peers. Our peer group is well-performing and small.

Brooks: We compare ourselves to Venture, Crown Bank, and The Business Bank. There are other startups in the last three or four years, but they aren’t performing as well. If we hit $40 million we will be the second-fastest growing in the group. Of course, fastest isn’t always best, there’s the issue of credit risk.

Upsize: How did you decide who would be president?

Syverson: We arm-wrestled for it [laughs]. It’s a good reflection of our duties. Mine’s been in commercial real estate lending. He has a broad operations background.

Upsize: What do you think of having a business partner? Some people say partnerships create problems.

Syverson: I think it’s good to have a check and balance. You have to ask, how well do you know these partners? Have you seen them in good times and in stressful times?

Brooks: I have banked a number of companies that have had a good strong partnership. The key is sharing. If you’re not going to share anything about your strategic direction and ideas, then partnership isn’t good.

Upsize: What surprised you about starting a bank?

Brooks: We were more pleased with some of the events that have taken place. Raising capital, to get that in 30 days, I won’t say that was surprising but it was nice.

Syverson: And it wasn’t subscription, it wasn’t a kiss and a promise. It was cash.

Upsize: How many investors do you have, and how did you get them?

Brooks: We have about 65 investors. We put our list together with three tiers, the likely, the maybe and the possible. We got on the phone.

Syverson: It was us calling people. We did it ourselves. We didn’t have Piper or Dain do it. We raised $9 million, and gave half of the last million back.

Brooks: There are a lot of wealthy investors in the Twin Cities and this has always been a great business environment.

Upsize: What’s driving the bank startups?

Syverson: At Century, we were the 11th largest in 2000 to 2001. Probably eight of those top 11 are gone now, because of acquisitions. And so what happens, the acquired say, nothing against the big acquirers, but they want something else. Also, it has to do with our age. If this was 20 years from now, I don’t think I’d be winding up at 60 to start a new bank. But at 40, yes.

Brooks: What you will see is regulators tightening up on the approval of bank startup applications. Before, you could start a bank with $2- to $3 million. Now it’s at least $5 million.

Upsize: Is there danger of bank failures following this wave of startup banks?

Syverson: You have ratios in mind, and loans are all reviewed by the state.

Brooks: In the late ’80s and early ’90s, with most of the bank failures fraud was involved.

Syverson: Or really stupid business decisions. After that period, a lot of regulation came out. If you don’t understand the market you probably are not doing yourself a favor to be in it.

kb*****@*****************ne.com. Leif Syverson is executive vice president: 952.746.3370;*******@*****************ne.com“> ls*******@*****************ne.com; www.signaturebankonline.com.