When People’s United Financial in Bridgeport, Conn., decided it wanted a piece of Boston’s growing tech industry, it had to start thinking like a tech company.
So to lay the foundation for a new specialty in banking life sciences, fintech and other cutting-edge firms, the $47 billion-asset People’s United hired a banker away from Silicon Valley Bank to lead that unit and speak its target customers’ language.
“If you have been in this space for a long time and can ask smart questions of the CEO or CFO of a technology company, that gives them a lot of comfort that you understand them and can give the right kind of guidance,” said Dave Dailey, the new region manager for People’s United's technology and private-equity banking business in Boston.
It is an ambitious move for a smaller regional, few of which have tried to cater to technology firms. Tech is trendy, and an inviting market as banks stretch for growth, but pitfalls lurk among its many nuances. People’s United is hoping that by bringing on veteran tech bankers, it can win business and minimize the inherent risks.
As big as the tech industry is in the Greater Boston economy, many banks steer clear of it for myriad reasons. For example, a tech company might have limited assets on its balance sheet because much of its value is in its intellectual property. Or a tech firm may have deferred revenue because it booked a big contract that will not be fully paid up on the first day. To a banker not well-versed in the tech business, that may seem like a liability.
“A traditional lender might look at a technology company and its balance sheet and see that there’s limited assets,” Dailey said. “That gets some bankers nervous, but that’s the norm for a technology company.”
But People’s United sees the tech sector as key to expanding market share in New England’s largest city, said Patrick Sullivan, the bank’s market president for Massachusetts and head of its commercial bank. Not content with merely lending to tech companies, Sullivan sees an opportunity to also pick up their deposit business and offer workplace banking services for their employees.
As of June 30, People’s United had the No. 13 deposit market share in the Boston area (excluding the global trust bank State Street). It held a little over 1% — or $3.6 billion— of that market’s total deposits, according to the Federal Deposit Insurance Corp.
People’s United likely cannot crack into the top ranks simply by virtue of who those banks are — Bank of America, Citizens, Santander and TD — but Sullivan predicted that it can get into the top 10.
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The company has also added bankers specializing in not-for-profits and franchises to round out its commercial bank.
But banking tech companies can be challenging for new entrants because of the barriers to entry, said Aaron James Deer, a managing director at Sandler O’Neill who covers several technology-focused banks, including Silicon Valley Bank.
Hiring an experienced team is a good start, he said.
“But it is essential to get the underwriting correct, especially as it relates to the [venture capital] sponsors and having a deep understanding of specific verticals, such as artificial intelligence or drug discovery,” Deer said. “It is very easy for a newcomer in the space to find itself the victim of adverse selection.”
The $58.1 billion-asset Silicon Valley Bank has established itself as one of the top lenders to the tech industry, and the company
Sullivan said the company recently hired a second banker to help build its private-equity-banking business and plans to ultimately hire another three to five technology bankers over the next 12 to 15 months.
People’s United is targeting technology firms with $25 million to $250 million in annual revenues. Once it has hooked those companies, Sullivan and Dailey believe those firms will stay with the bank for its other middle-market banking products.
Dailey said that People’s United can differentiate itself on its more traditional offerings, like insurance services, equipment leasing and workplace banking.
People’s United also has a more extensive branch network than some other technology-focused banks, including Silicon Valley Bank and Square One Bank. That will not be relevant to every company, but it will make a difference for some, he said.
Having worked with the Massachusetts High Technology Council, Sullivan said he has seen many smaller tech companies pay for legal advice early on, but neglect financial advice until they have grown a bit larger. People’s United can meet that need, particularly for tech companies under $100 million in annual revenues, he said.
“In many cases, when it comes to the financial advisory side, they grow fast and those are the last services that catch up with them,” Sullivan said. “We’re gonna try to catch them early.”
