How banks can herd ‘unicorn’ clients

A de rigueur feature for every bank now is to offer an innovation lab. A big part of that is an effort to woo potential fintech "unicorns" as banking clients.

“It’s always been a competitive market and now it’s becoming even more so,” Bob Blee, the head of corporate finance for Silicon Valley Bank, said of marketing efforts aimed at startups with high estimated valuations.

Venture capital continues to flow to fintech startups — $1.7 billion in the second quarter this year alone, according to KPMG, and over half of that went to West Coast-based firms. Banks increasingly see these young firms backed with sudden large infusions of VC moneyas commercial clients with high growth potential.

But serving fintechs requires more than just providing accounts and loans. SVB, of Santa Clara, Calif., has long been known for its niche of banking innovative technology companies (SVB says it banks about half of the venture capital-backed tech firms in the country).

One of the benefits of serving these young firms, Blee noted, is the opportunity to partner with them as they become established. Rapid growth and ready VC funding has resulted in many more tech companies needing banking services than in the past. For instance, the same KPMG study recorded $184 million in first-time financing, a record.

“The market is so much bigger than it used to be, it’s not just the hardcore technology and semiconductor companies,” Blee said. “Most industries are undergoing disruption by new innovators in the market.”

Bank of the West is another financial institution looking to ramp up its efforts in attracting and retaining technology clients. The San Francisco bank, a subsidiary of BNP Paribas, recently hired former Bank of America and Deutsche Bank executive Andreas Bubenzer-Paim to head up the technology division of its commercial banking team.

Bubenzer-Paim will be focused on growing the technology team within the group as well as working with domestic commercial clients of Bank of the West. He will also work with the BNP Paribas Group globally and oversee new relationships with technology companies.

“I’m excited and really passionate about this space,” Bubenzer-Paim said. “We are open to any company in the technology space, and with so many subverticals, there’s a lot of opportunity.”

Bank of the West is casting its net outside of Silicon Valley in looking for tech clients; Bubenzer-Paim said it will utilize the reach and infrastructure of BNP Paribas in its efforts.

“We call it a local-global model,” he said. “We have bankers all across the country with an expertise in tech that can be your local banker. We can also support companies that want to scale globally; BNP Paribas being a global bank … it’s important to be able to match their growth with a scalable platform.”

In general, banks have been ramping up their tech offerings to commercial clients over the past year or so to serve those customers better. But serving technology companies is a bit different than banking typical corporate clients or small businesses. It goes without saying they want digital services — they are unlikely to want to deal with much paper or have to stand in a teller line.

“They’re very discerning buyers of banking products,” Blee said. “They expect cutting-edge services that are simple, secure and intuitive.”

But more than digital services, they’re really looking for their bank to play much more of an advisory role, Blee said.

“Often they scale at a very rapid rate,” he added. “They want their bank to give them the right things at the right time. They want to know: when should I hire a full-time controller? At what point do I need to bring on a treasurer?”

That aspect is crucial since many tech startups are more focused on innovating, and not as much on the day-to-day financial minutiae of running a business, said Patricia Hines, a senior analyst in Celent’s banking group.

“The VC money some of these startups get puts them in a very unique position,” she said. “If somebody just got $12 million, they might need advice on how to invest that money in their business. They rarely have a financial staff until they get to a certain size, so it provides a nice opportunity for banks to be a trusted adviser to them.”

With many banks regularly looking at how they can partner with or acquire fintech companies so they can access some of the latest digital financial innovations, being a good bank to a tech client means they might be more inclined to work with that bank in the future, Hines said.

“It’s kind of that halo effect,” she said. “They think, 'This is the bank that cares about me.' ”

That’s something SVB has seen in its years of banking tech clients.

“We collaborate with clients often," Blee said. “It’s pretty fundamental to what we do. They’re innovators and forward-thinkers, so it makes sense.”