Santa Cruz County ‘Super-Community’ Bank’s New Venture Division
David Apgar, who heads the new venture division for Santa Cruz County Bank—newly merged with Lighthouse Bank—says it is the first of its kind in Santa Cruz. And Apgar, a business analyst with a handful of degrees from Harvard and Oxford who spent a decade at CEB (now Gartner), says Santa Cruz’s startup community is ripe for a venture bank.
“When I first moved here three years ago, I was working as a management consultant, helping startups and tech companies find new ways to grow, using practices I developed as executive program manager at CEB,” he says. “And even then, more and more of my clients we're asking for help with financing—and you can see why, with these two healthy banks in town, with almost more businesses than they could keep up with in construction and real estate development and so forth.”
Apgar explains that traditional banking does not line up well with the way business is typically done in the tech economy. Ordinary lending requires evidence of cash flow and personal guarantees, both of which are needed in order to secure backing from the SBA. Serial entrepreneurs and founders in the tech sector are seldom in a position to meet those requirements.
“And so there's a large part of the community that has serious banking needs that were going unmet.” Apgar says. A year ago, he recalls, Lighthouse Bank president Jon Sisk said, “If you ever get sick of dialing for dollars for your consultancy every day, do you want to launch a venture banking division?”
The two made a proposal to the Lighthouse board at their annual retreat in April, and the board supported it unanimously. The Santa Cruz Bank Board also signed off after merger talks started. “So,” Apgar reports, “we'll be finding ways to lend to startups!”
Apgar says the bank will be able to determine an entrepreneur’s credit worthiness even if they do not have a long cash flow record or a ton of equity.
“They might have receivables, or they might have inventory, and they need working capital to finance them while they put sales together. Or they might have a term sheet for an upcoming round of funding, and if you know the investors, you can basically lend against the funding.”
Another example for a venture loan would be a company that’s a bit further along and has some major contracts, but needs money to fund growth. He predicts that most of his loans will be in the $250,000-to-$500,000 range.
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Apgar says that because they are working in Santa Cruz, his new venture division will get to do something that even the handful of banks that do this kind of venture lending don’t do.
One of the first wins is Thoughtfull Toys. Santa Cruz Works referred David Silverglate CEO of Thoughtfull Toys to Apgar in early October. A $300,000 line of credit was quickly established, allowing Silverglate to move forward with national distribution. Sliverglate presented at the Santa Cruz Works The Impossible Possible on October 2, 2019. More about Thoughtfull in our article “Thoughtfull Toys: David Silverglate Keeps Playing”.
“We’re looking at supporting pools and funds of seed investors,” he says, pointing to Santa Cruz Works Accelerator, where four out of seven startups have exited via acquisition or Series A and B funding including Cruz Foam, YaDoggie, Jane Technologies, and Buoy. Apgar is also talking to Startup Sandbox, an incubator for companies doing genomics, bioinformatics and other biotechnologies. Six companies have graduated from the Sandbox into bigger spaces, and Apgar says he can help them get labs up and running with investment funds and operating funds—“help them get on the road, basically.“
Although tech will be a primary focus, Apgar says Santa Cruz County Bank’s new venture division will also be able to offer loans to “Main Street businesses“ that might be transitioning from an older owner to a new team. Frequently it’s difficult for folks to get loans under those circumstances—and a venture bank can help!
Read about the merger of Lighthouse Bank and Santa Cruz County Bank into a “super-community“ bank here.