Square 1 Bank Carves Out a Niche as a Venture Debt Lender to Startups

Square 1 Bank, a division of Pacific Western Bank, has carved out a unique niche as a venture debt lender to life sciences and technology entrepreneurs as well as a financial services partner to venture capital firms. This dual role positions the bank as a valuable sponsor of the 2018 Michigan Growth Capital Symposium.

“We do two things,” says Jay McNeil, managing director of Square 1’s life sciences practice in the Midwest. “We provide traditional banking services, such as operating or investment accounts, online banking and wire transfers. However, we are better known as a place where startups come when they need to borrow money.”

Not every startup meets Square 1’s criteria for a loan, however.

“We lend money to health-care and technology companies that have already raised venture capital from a VC firm or a syndicate of VC firms,” McNeil says. “That is an important requirement. We consider the venture capital firm to be the professional investor, the one that has raised a committed fund. VCs typically make an initial investment in a startup and then have reserves for future rounds of funding supporting the company.

“We want to get involved once a venture fund is in place,” he continues. “This presents opportunities for us to provide debt at various times during the startup’s life cycle. Our approach is customizable for each startup and is very different from what traditional banks can offer.”

Loan amounts to startups typically range from $500,000 up to $20 million.

“Sometimes we get involved with companies early on, at the Series A stage,” McNeil remarks. “Other times, companies don’t approach us until they are already generating revenue and have established products and offerings. At that point, the company is thinking more about a line of credit than a venture debt term loan. We offer tailored solutions to meet the company’s current and future needs.”

McNeil says Square 1 works with venture investors to help them support their portfolio companies. “Venture capital firms also can utilize Square 1’s conventional banking services or take on a capital call line of credit to supplement the firm’s needs between capital calls from the limited partners,” he explains.

The MGCS is a sweet spot for Square 1, according to McNeil.

“We like events that bring together companies trying to raise venture capital and groups of local and out-of-state venture investors,” he remarks. “We look forward to the symposium each year, as it not only assembles key players and potential clients for the bank but, more important, serves as an incredible hub for networking and innovation.”