Cambridge Bancorp in Massachusetts is finally ready to compete against bigger banks for the business of New England's entrepreneurs.
The $1.9 billion-asset company formed an innovation group in early 2016 after it hired Scott Chamberlin, a former executive at Bridge Capital Holdings, a Silicon Valley lender that was bought by Western Alliance Bancorp.
Chamberlin, who also worked at SVB Financial’s Silicon Valley Bank, then spent two years generating awareness of the group with entrepreneurs, which he admits are often skeptical of banks.
“The plan is to build a robust group,” Chamberlin said. “We spent a couple years proving … we could win business externally and, more importantly, internally from a credit standpoint. We’ve proven that out. This is year we start to [add] scale.”
Scale will be important for Cambridge, which is much smaller than many of the major players in the startup space. Those include the $51 billion-asset SVB and Square 1 Bank, which is part of the $25 billion-asset PacWest Bancorp in Los Angeles.
Cambridge’s team currently consists of just Chamberlin and one other lender.
There are certain things a bank must do to capture the attention — and the business — of entrepreneurs, said Scott Goodwin, who leads Wolf & Co.’s technology services team in Boston. Bankers must be clear about the products and services they can offer startups, and they should implement a credit approval process that supports those goals.
Bankers also need also prove to entrepreneurs that they have staying power.
“Are you guys in it for the long haul?” Goodwin said, channeling the response an entrepreneur would have for any banker who comes knocking. “What do you have that is different than Square 1 Bank or Silicon Valley Bank?”
Cambridge isn’t the only bank looking to quickly build a platform to focus on entrepreneurs. A group in New York has applied to open
Chamberlin, who began looking for the right bank after moving back to New England a few years ago, says there is a need for his team’s services.
“I really do think this area could benefit from a local bank that understands this space,” he said. “I want to be known as a credible local alternative to Silicon Valley Bank.”
It helps to be part of a well-established bank in the Boston area.
“The nice thing about Cambridge Trust is it has an impeccable reputation locally,” Chamberlin said. “We’re not trying to tell them who Cambridge Trust is. We’re just trying to get them to believe that we’re committed to the space and trying to stay in it.”
Cambridge is offering a range of products and services that includes working lines of credit, cash management and foreign exchange, typically to firms with $1 million to $50 million in annual revenue. It usually take clients a year or two to generate a profit.
Chamberlin said Cambridge differs from local competitors by lending to companies at earlier stages. While Cambridge has the ability to take equity stakes in the firms it works with, Chamberlin said the bank has yet to do so.
“Getting people to understand that we’re in the space and we have the expertise and the wherewithal to support these kinds of businesses,” he said.
Chamberlin declined to discuss the size of his group’s loan book, though he said momentum has picked up. The bank recently announced that the innovation group completed a $5 million credit facility for Skyword, a content marketing company in Boston.
Innovation banking is part of Cambridge’s commercial and industrial lending category. Loans in that area increased by 9% in 2017 from a year earlier, to $65.3 million. In 2016, the C&I portfolio grew by 41%.
Cambridge has been diversifying its C&I book in recent years, adding the innovation group and getting into asset-based lending.
Chamberlin said the bank is focused on clients that are producing revenue, including ones that have not yet made a profit. Chamberlin, who has largely worked with software licensing firms in the past, is also targeting those businesses at Cambridge.
There is “a reasonable risk” to working with startups, depending on a lender’s experience working with early-stage firms, he said, adding that he has never taken a loss on a deal.
“The benefit of working with entrepreneurs," he said, "is the excess liquidity and the low-cost deposit base, which helps fund other parts of the bank balance sheet.”
