Information technology and life science entrepreneurs in North Carolina have noticed the way of doing business at the old Centura Bank has changed in recent months. More than its name has changed, and its Knowledge-Based Industries division is already making waves in the state’s tech sector.
Throughout much of the past two decades, while other North Carolina banks grew
rapidly through mergers and expansions into services like investment banking, Centura Bank played a conservative hand befitting its base in rural Rocky Mount.
Centura’s major foray into the venture investing arena was the $20 million subordinated
debt fund launched six years ago by its Centura Capital unit, but most of the operation’s
investments were decidedly low tech: furniture manufacturers, an emergency room
staffing company and a security service.
Now, following its acquisition last summer by Royal Bank of Canada, the renamed RBC
Centura is making a bolder move into technology banking than its high-flying peers in
Charlotte and Winston-Salem have ever attempted.
Royal Bank has created the first U.S. center for Knowledge-Based Industries within Centura’s Triangle operations and has brought one of the pioneers of the initiative, Brent Keating, in from Canada to run it. Keating and some colleagues began the KBI program in Ottawa in 1985, offering loans and cash-management services to young information technology and life sciences companies in hopes of landing more business as the firms grew.
“A lot of banks took the stance that pre-revenue companies are too risky, so no one
really lent to the technology industry,” Keating says. “It’s only been in the past few years
that banks have started to take notice of the potential of these companies as customers.”
KBI has capitalized on that potential, counting telecommunications components giant JDS Uniphase, software developer Corel and Newbridge Networks, which was bought two years ago by Alcatel, among its 2,500 clients in Canada. The operation is among Royal Bank’s most profitable divisions, and losses among its technology loans are minimal, Keating says.
Logical place to start
With Centura’s base in the technology-rich Carolinas and Virginia, the Canadian bank
immediately saw a prime opportunity to export KBI to the United States, he says. The
division already has landed two Triangle technology clients, including Silicon Wireless of
Durham, which recently closed a $3.2 million debt facility for operating cash and capital
Steve Carnevale, chief financial officer of the maker of silicon-based RF power devices, is impressed with RBC Centura’s willingness to work with a start-up.
“For them to be so flexible, it only adds to their ability to start relationships in this area,”
Carnevale says, adding that the deal will help Silicon Wireless delay its third round of
venture financing until this summer, when it hopes to get a better valuation.
The Venture Debt product offered by KBI was created for just that reason, says Chris
Julich, whom Keating recruited from Comerica’s Imperial Bank office in Durham. A young
company can get a one-year loan for working capital or a three-year loan for equipment
at 2 percent above the prime rate in exchange for giving KBI warrants that the bank can
convert to an equity position later on.
“It’s so tough to raise money (through venture financing) these days that debt is now
attractive to tech firms,” Julich says. “Instead of burning their venture capital on equipment early, they can defer those costs through a couple of rounds and not dilute their holdings as much.”
“Life cycle” approach
Silicon Valley Bank and Comerica are the only other banks in North Carolina that offer such loan arrangements, Keating says, but RBC Centura also offers senior debt instruments of up to $25 million, or about 10 times the size of a typical Venture Debt loan.
“We’re really a hybrid of a Wachovia and a Silicon Valley Bank,” he says. “We have the
capability to handle companies through their entire life cycle as they grow, and I’m not sure the others do.”
Centura also can offer clients access to potential investors – Royal Bank operates a $300 million seed fund and $800 million venture fund – and Minneapolis-based investment bank Dain Rauscher Wessels, which Royal Bank bought a year ago.
“They have 30 analysts who focus on the technology space, and we can bring our clients to their attention,” Keating says of Dain Rauscher.
Expanding the base
With a foothold in the Triangle, Keating now is trying to expand Centura’s traditional banking footprint. He opened a KBI office in suburban Washington, D.C., in January and plans to open another in Atlanta next month.
Beth Kinsey, a veteran of both Silicon Valley Bank and Bank of Boston, is running the
Washington office. No one has been hired yet for the Atlanta office, which Keating says will cover Georgia and Florida. Rob Mitchell, a former Centura Capital manager in Charlotte, will handle the Carolinas, and Julich will oversee the Venture Debt program across all regions.
“We hope to leverage our activity in this area into more commercial banking relationships
across the Southeast,” Keating says.