Anyone who questions the entrepreneurial spirit of Americans
might be swayed by spending a few minutes chatting with Doug
He's CEO of Durham, N.C.-based Square 1 Financial (
), the holding company for Square 1 Bank, which provides loans
and other financial services to entrepreneurs, startups, venture
capital firms and private equity outfits.
The company, which was founded in 2005 and had its initial
public offering on March 27, depends on a steady stream of
innovative people, companies and ideas to expand its
In that regard, Square 1 is in good shape, Bowers says.
"About $25 billion to $30 billion is invested into the
innovation sector every year, and it goes to somewhere between
3,000 and 4,000 companies," he told IBD. "Of that, about
one-third are brand-new companies. That represents the pool of
opportunity we focus on."
Where The Go-Getters Are
To reach that pool of opportunity, Square 1 employs 75 client
representatives -- what Bowers calls "client-facing individuals"
-- in a dozen offices throughout the country.
These offices are concentrated in what he calls innovation
hubs -- places that focus primarily on technology and life
They tend to be markets rich in talent, research and venture
cap firms. They include Boston, New York, Seattle, California's
Silicon Valley, San Diego, Denver and North Carolina's Research
Triangle, where Square 1 is headquartered.
About 80% of Square 1's loan portfolio is dedicated to
entrepreneurial companies backed by VC investors, Bowers says. Of
that 80%, about 60% is technology-based and 20% life
The remaining 20% of Square 1's portfolio is dedicated to
venture cap investors. These are the types of borrowers who don't
find a lot of financing options at traditional banks.
"Given the unique nature of the borrower and investor, there
are very few banks willing to make these types of loans because
of the real or perceived risk of lending to startups or near
startups," Bowers said. "Commercial banks see a company that may
not have revenue and certainly does not have income or positive
cash flow, and may not have collateral -- so the commercial banks
tend to say, 'No, thank you.'"
One result is that VC firms and entrepreneurs must go shopping
for loans at banks and other financial firms that either
specialize in venture banking services or offer them as part of a
larger menu of services.
Among publicly traded companies, the list includesSilicon
Valley Bank (
),First Republic Bank (
),City National (
) and Bridge Bank, owned byBridge Capital Holdings (BBNK).
There is no precise formula for making loans to VC, private
equity and entrepreneurial clients, Bowers says. It takes
experience, expertise, instinct and research.
"We look very closely at the investor -- their experience in
the space, their knowledge, the amount of capital they have," he
said. "The investor is a very key component of how we evaluate
whether we want to lend or not."
When lending to a company, Square 1 takes a hard look at
property that it holds, its management team's experience and
whether it fills an area that had not been filled.
Delving Into The Deal Book
Some funding arrangements that Square 1 has inked in recent
months include credit facilities of $3 million to online
marketing software provider Accelerize New Media, $4 million to
digital publishing technology firm GTxcel, $12.5 million to
dietary supplement maker NutraMed and $4.5 million to sitter- and
nanny-search service Sittercity.
Square 1 also provided a $7.5 million growth-capital facility
to network-reliability tech firm Talari Networks.
There is no shortage of companies in need of funding.
"We believe there is plenty of runway and opportunity out
there," Bowers said.
To raise capital for that opportunity, Square 1 took its
shares public last month. The company's March 27 IPO priced at 18
-- above its expected range of 15 to 17 -- and raised $104
million by offering 5.8 million shares. The stock closed its
first day of trading at 20.60. Shares currently trade near
"The IPO was underwritten by arguably the top two
underwriters, in Keefe, Bruyette & Woods and Sandler
O'Neill," said Scott Sweet, managing partner at IPO Boutique.
"The stock has held up pretty well through this tough
Founder Casey's Legacy
Square 1 was founded by Richard Casey, a banking veteran who
previously served in a variety of positions at Comerica Bank and
its predecessor. A couple of his posts were president of the
emerging growth division and managing director of Comerica
Ventures. He died in November 2010.
Bowers joined Square 1 three years ago. Previously, he spent
years atBank of America (BAC) in a variety of positions.
He also has experience at starting up businesses and working
at a private equity firm.
Square 1 has seen a steady rise in its fortunes the past few
years. According to a company filing with the Securities and
Exchange Commission, Square 1 had net income of $22.4 million in
2013. That was up from $14.4 million in 2012.
The last year that the company reported a net loss was
Square 1's average deposits grew to $1.87 billion in 2013 from
$1.53 billion in 2012.
The company's average loan balance increased to $918 million
last year from $751 million a year earlier, while adjusted
operating revenue climbed to $105.3 million from $84.2