Posted on: 05/09/2017

Laurie Lumenti-Garty of Square One on the Startup Banking Toolkit

Laurie Lumenti-Garty

Senior Vice President - Square One Bank


Podcast Summary

Laurie Lumenti-Garty of Square One Bank joins Founders & Friends to explain the services that every startup should receive from its bank. Square One focuses entirely on startups and does an excellent job. Laurie walks through Cash Management, Venture Debt and other financial services that are helpful to startups. Laurie & Square One have been great partners of Kruze Consulting and we recommend them to our clients.

Podcast Transcript

Scott Orn:

Welcome to Founders and Friends podcast with Scott Orn, at Kruze Consulting. And before we get to a wonderful podcast with Laurie Lumenti of Square One, I have a couple of things to go over. First of all, the podcast is brought to you by Kruze Consulting, the startup accounting and tech firm, started by my lovely wife, five years ago, Vanessa Kruze. We just hit a 160 clients, could not be happier, and if your startup, or a friend's startup needs help with financials or taxes, things like that, we are here to help. I forgot to mention, we have this really cool R&D; tax calculator, that now people can take advantage of for free, and basically, the IRS is now lending companies write off R&D; tax credits against their payroll taxes, this is a game changer for startups. You couldn't use this for a very long time, until the company was profitable, but this year, 2017, you are going to be able to use it for your payroll taxes, so check out the Kruze Consulting R&D; tax credit calculator, on our website kruzeconsulting.com, awesome tool, shows companies how much they can save, perfectly free to use a tool, and if you want to talk more, we're here for you. And also, finally brought to you by Expensify, Expensify helps you build expense reports that don't suck, that's straight from David Barrett, the CEO, it's integral tool we use Expensify like crazy, we highly recommend it, it's actually the first tool that we put ever single new client on, and the reason why is, documenting your expenses is super important, it's something the IRS looks at, in fact, Vanessa was actually quoted in New York Times about nine months ago, talking about this. But, if you are looking for expense manager software, definitely check out Expensify. It's the best, if you go to our website kruzeconsulting.com there is a new section that has tips and one of those tips is use Expensify, we actually have a code that you can just click through and you can get 20% off, so look for them at Kruze Consulting website. But most importantly, just use Expensify., it's a fantastic tool. Now onto Laurie of Square One, fantastic podcast, I hope you enjoy, thanks. [music intro] Welcome to Founders & Friends podcast with Scott Orn at Kruze Consulting, my very special guest is Laurie Lumenti-Garty from Square One Bank, welcome Laurie.

Laurie Lumenti:

Thank you.

Scott Orn:

So, beautiful day outside, thank you for bringing the chocolate chip cookies we are snacking on right now.

Laurie Lumenti:

Yeah, they are so yummy.

Scott Orn:

So Laurie is, I don't know your exact title, but you are a Square One, you are an executive there, and we wanted to have you on because we have a lot of clients with Square One and kind of tell the Square One story to the startup world.

Laurie Lumenti:

Sure, well, we've been around for, in 2005 we still considered ourselves a startup, in banking terms that's relatively sure, but Square One is a venture bank, so our focus is working with technology life science companies as well as the venture and private equity firms that finance those companies. So, we have around 2,000 clients nation-wide, offices pretty much everywhere, you see a tech hub, Square One has a presence, our client is a mix of tech companies, life science companies and we have about 250, 300 venture firms as well as clients, venture and private equity firms.

Scott Orn:

I didn't know you guys were banking like venture capital funds, that's really interesting.

Laurie Lumenti:

Yeah, we are.

Scott Orn:

Do you do like the capital call stuff and things like?

Laurie Lumenti:

We do.

Scott Orn:

That's a great way of building a relationship. So you focus on startups, you align with us perfectly, like you are a startup bank, and your target is C to late stage kind of companies?

Laurie Lumenti:

Yes, so we are full life-cycle bank, so we start as early on as concept stage and can work with companies that are public, doing business globally. So my particular focus within a bank, I had up our early stage practice so that two guys, two girls in a garage running up through companies that will raise their first institutional round up funding, so I am agnostic in terms of the sector, but my focus is really that building block stage and the early stage.

Scott Orn:

I find that the most fun too, because it's like the most enthusiasm, the founders are usually young, full of fresh ideas, and want to change the world, and we did that at Kruze Consulting too, it's actually, we probably have similar business models that that, once those companies start growing, or raising more capital, start hiring lot more people and get a lot more complex, and you can do more banking services for them and we can do more accounting services for them, so that's the great way about the valley.

Laurie Lumenti:

Generally speaking, I think the early stage companies, the banking needs are typically not that complex, unless the company is monetizing their business already but generally speaking, they tend to be pretty simplistic at that stage, but they do need a little bit more hand holding on other things to help them to get to the next stage, so we have a platform that really helps them as they are getting up off the ground, so I find that it's more that building block stage, and I personally am more of a builder myself, so it aligns with my interest and passions and working with companies rolling up my sleeves and helping them get up off the ground.

Scott Orn:

What are some of the things like an early stage startup needs from their bank, like what do you do for them?

Laurie Lumenti:

Well, first, typically what they need is a bank

accountScott Orn:

Hold the cash.

Laurie Lumenti:

Yeah, hold the cash, and hopefully, lots of it but when you think about their banking, I think of it more as the inflow and outflow of their fuel, of their company, so they do need a good banking platform, there is a difference between a commercial bank and a retail bank, Square One is a commercial bank, so working with a bank like Square One is really about that automation of products and services and really thinking about in the long term creating operational efficiency for the company. So it's not usually top of the mind for the entrepreneur when they first start out, but usually by the time they raise funding, generally speaking, they are starting to really pour gas on things and that's the time that you don't really want to be displacing your banking and trying to up-tier it, so we prefer to get companies early on when they are first starting out, help them make sure that they have the right infrastructure when they are starting up and help them with some of the other things that they need, connections with the folks like you, connections with investors, whatever that company needs. I've been doing this for a really long time and I still sometimes get surprised at what their needs are but the great thing about Square One is it has a really great platform and I know a lot of really well connected people that have been around for a long time. So, we are usually one degree of separation away from finding and the answer or solution for them.

Scott Orn:

Yeah, you guys have a great reputation and awesome member of the community. What are some of the, for people out there who know Square One but maybe are thinking about, they are choosing the next bank for their startup-

Laurie Lumenti:

Well, hopefully they are not choosing another bank. [laugh]

Scott Orn:

What makes you guys awesome, like what do you guys compete on?

Laurie Lumenti:

Yeah, I think the people are really part of our secret sauce for sure, the bank has been really lucky and fortunate to attract some of the best bankers I know that I have worked with over the years, a lot of folks that I worked with at Comerica Bank, SBB, Wells Fargo, so really, we have a really great team of professionals that are helping to build the brand and build the business and they are folks honestly I wouldn't think of being in the trenches with anyone other than the team I am with right now.

Scott Orn:

That's awesome, yeah. It's really important for the startups to build a relationship with their bank, and specifically their banker, because things come up where they mint need a favour or like you said, they need a referral to another service provider, who you are going to know off the top of your head because you know so many people that know so many other kinds of service providers, so that is super important. We were talking, before we turned on the mics that you guys went through a merger, a couple of years ago and maybe if you walk the audience through that, and how that's affected your business?

Laurie Lumenti:

Sure, we are acquired about a year and a half ago, by Pacific Western Bank, and it's actually been a great partnership working with the Pacific Western Bank, so their model is really bent to acquire specialty lender so we fit into one leg of the stool for them, and then we provide the venture banking so it was never really their intention to acquire us or to integrate us into another bank and become, I mean, we are integrated but merge is part of the Pacific Western Brand, so we have our own credit culture, our own brand, our own team, and really, it's been a great partnership, the leverage that we get off of having the aggregate balance sheet really enables us to stay with the companies a lot longer in our life cycle, so we went from about a 4 billion dollar bank to a 22+ billion dollar bank. So with that comes, the investment into our brand, and into our bank in terms of growth, but also, investment into the platform into our clients and making sure that we can stay with them a lot longer in their life cycle.

Scott Orn:

So that helps you like make much bigger venture debt loans, or just provide what- more foreign transaction services, or more complicated stuff basically?

Laurie Lumenti:

Yes, so over time, for sure, but definitely on the balance sheet being able to do bigger loans, taking larger holds on things and being able to support companies a lot longer in their life cycle.

Scott Orn:

That's cool. It's really cool that, you hear like some acquires buy a company and then they immediately try to change them, it's like why did you buy us in the first place, but this is a great situation, where they are able to, you guys are really good at something they wanted exposure to, and it doesn't sound it got changed too much.

Laurie Lumenti:

Yeah, I know, and actually they bough specifically for us, the acquisition price, I think it was about 845 million, it's one of the largest transactions in the financial sector for sure in the long time, so they specifically bought us and there really was no intention to integrate us and mess with it.

Scott Orn:

Yeah, but being able to do those later stage loans is probably really powerful for you guys, because, like you said, you build a relationship from C all the way up and through the years, and five or six years later, they are late stage company and they want to continue to be able to get a loan from you and how do you manage all their money?

Laurie Lumenti:

Right, so, it's definitely creating more opportunities, in fact we are looking at a couple really largest indicated opportunities from other banks which in the past we probably wouldn't have had the appetite for or ability to really contemplate it seriously, so it's been really great; all of that said, it hasn't changed our focus at all, we are still really passionate about working with early stage companies, I was brought on about two and a half years ago specifically to help build out the early stage practice, so to focus on that, two guys,two girls in a garage, with or without the dog, I am a big animal lover so hopefully with the dog, but the companies that will raise institutional funding, so that is a relatively two and a half years are not really new, but that is a newer initiative for the bank.

Scott Orn:

Yeah, in terms of like for you, what are you looking for out of those entrepreneurs, like what makes a good fit for you?

Laurie Lumenti:

Yeah, so we look for entrepreneurs that really have a desire to grow, plan and raising venture funding for sure, so I think there is a lot of, there are a lot of startups in the Valley, not all companies need a commercial bank in the long term, so I think there is a difference between startup that plans on raising funding, plans on getting to scale and will need commercial banking products and services, and those ultimately are the kinds of clients that we tend to look for, so I look for a really good team, I look for a really great idea, I look for a bank market that is going to support the funding going into it, I look for all of the things that you would typically look at or look for to attract venture funding.

Scott Orn:

We are kind of the same way, like we always tell people that if you are raising venture funding, you are in a value like or execution, because we can move really fast, we do things really well, and someone who is bootstrapped, and we are bootstrapped company too, so there is no shame of being bootstrapped, but they tend to be more cost focused and don't need things right, kind of as quickly or as professionally done, and that is probably the same for you guys, like a startup really appreciates their bank when they're venture funded and they have to accept 5 million dollars with the wires, in a 24 hour period, they know that you guys can get it done for them.

Laurie Lumenti:

Right. I think also, when a company is bootstrapping, they typically are using their own funds to feel the growth of the company so you have to think from an operational end point, generally speaking if they are taking money from their own bank account, it's a lot easier for them to just transfer funds into an account at the same bank typically, versus having to write a check, or wire funds to another bank and manage two separate accounts, during that bootstrap phase in this. And similar with you, if they are looking at their financials and they have one person doing it versus two sets of individuals doing it, sometimes it makes a little bit more sense for them, maybe it's not the right answer, it's not what we want, but, it's really, I always encourage entrepreneurs to really think about what that experience is going to look like, we are not going anywhere, but to really think through whether or not that is how you want to be spending your time versus executing on the business.

Scott Orn:

Yeah. I always say sometimes like they are buying back some of their time by working with us, or by working with an awesome startup bank like you guys, they are freeing themselves a little bit more. Again, they can call you, you know exactly the questions they are going to ask probably before they even ask them. Also, one of the things we talked about, was just talking about venture debt a little bit, and maybe explain this to the audience, and I think most people have heard that term but maybe don't understand the dynamics purely, can you just explain what venture lending is?

Laurie Lumenti:

Yeah, sure, I think a lot of people confuse venture debt with taking debt and venture funding.

Scott Orn:

Awesome, thank you for saying that, and yes, I answer that question all the time.

Laurie Lumenti:

Yes, oftentimes I get that. I don't really want to raise equity, but I would like venture debt, that doesn't work that way, so venture debt is really the art of leveraging equity with debt, so when a company raised their institutional round up funding, typically they will lay around that to help generally not as a bridge, but really as runway extension for them, so oftentimes, if they have a little extra cushion it enables them to kick off a couple of extra milestones that ultimately or hopefully will enable them to boost their evaluation, so that is the key to is, where the reason the entrepreneurs will think about it. venture debt is not for everybody, but in a lot of instances, it definitely does make sense, in the instances it doesn't, I think entrepreneurs really need to think about the fact that debt is debt and it does have to be repaid, so we are a bank and we lend on our depositors money, right, so if you look at rates these days, they are not terribly exciting but we are not taking venture risk with depositors' money, so when we make those loans, we need to make sure that we're getting repaid back, so I think when entrepreneurs don't have a lot of visibility into where they are going and where their business is leading, they really need to think about whether or not they want debt blooming and the need to repay that debt back and service the debt, so for other companies, as they start to move out of the venture, absolutely lending, we look to lend not only doing venture debt, but also as a base lending and other creative solutions.

Scott Orn:

Yeah, that's a great analysis. Said another way, don't look to a lender to like save your company, a lender is going to add on to like more equity or add on to the equity but not like kind of put money in in a tough time or-

Laurie Lumenti:

Right, like a bridge loan.

Scott Orn:

Bridge loan, yes, thank you for saying that, yeah, sometimes we have people come to us and like oh I'd really like some venture debt because I am not really going to hit my milestones right now, and it's like, well that's not actually not what it is for. It's when you have plenty of, you just need a little extra cushions, not to kind of save the company.

Laurie Lumenti:

Right, and, venture is typically done when a company first closes, the roundup funding, so we generally would like get involved at the time that they close their series A round, series B round, whatever, so generally speaking, the bridge, you know, that is a bridge and oftentimes it's more like the peer loan not a bridge, so a bridge is, we see predefined event occurring, a peer is when company is running out of runway, but they don't have their next round of funding locked in, and they don't really have, it's not imminent, right. So it's an event that hopefully will happen but because you can't see it, it's more of a peer than a bridge.

Scott Orn:

Yeah, I haven't heard that term before, it's a really good term. You also mentioned something about asset based lending, and maybe you can go through the couple of kinds of asset based lending that Square One does?

Laurie Lumenti:

Sure, so through our special [17:17 indiscernible] group we provide, it's basically asset based so we look at invoices, as companies are starting to commercialize their technology and they have receivables than we can generally lend against those receivables, so we can lend against specific invoices, or receivables based, so that's generally the principle behind asset based lending. So, the solution we have tends to be, it's a pretty elegant solution in terms of how it's structured, and in the terms, it really depends on the individual borrower but we really try to understand what our clients' needs are or an entrepreneur's needs are, what their objectives are, and fill the gap with this solution, it's going to give them the flexibility that they need to move to the next step.

Scott Orn:

Yeah, and on the accounts receivable financing, it's basically just so for the late people out there, you know, especially when your company is growing really fast with the revenue, you can basically kind of pledge those receivables, to the bank, and the bank thinks that's awesome collateral because it is, even those customers are going to pay, and so they will do it in advance at 75 or 80 percent of the advance rate and that way as entrepreneur, you can use that money to fund your growth, in that mega growth cycle, because sometimes people don't realize that growing actually sucks up a lot of cash, and working capital, so you guys are helping solve that problem.

Laurie Lumenti:

We are.

Scott Orn:

Do you guys do any like equipment lending, or is that the past?

Laurie Lumenti:

We won't do equipment lending more time in venture alone versus specific equipment, so we are not doing any leases or that specific, but typically within a line of credit we can talk out or carb out equipment.

Scott Orn:

Okay, cool. And then, what are some of the like, do you guys do like the pure kind of growth capital lines, like some of the specially finance companies would do, or is that in your toolkit?

Laurie Lumenti:

It is in our toolkit. Funny enough, we have a structured finance group that actually does that, so as companies really start to mature and grow, than our structured finance group will typically take on that risk, so and also through our partners at capital source as well, capital source is the third leg of the Pacific Western Bank.

Scott Orn:

I didn't know they bought Capital Source?

Laurie Lumenti:

They did. So there are brother or sister organization, it depends on who you ask, but they are definitely in the family, and so we found a lot of opportunities where if there is something that we can't do then, there is opportunity that they have been able to step up and help.

Scott Orn:

That's awesome. What are, maybe this is kind of funny or funnier question, you got to have a couple of good stories of like the phone ring in the middle of the night, or hey, what are some situations where you've helped clients work through tough situations or you just find a comical, like how did they end up here, maybe you made a loan to the company that wasn't executing as well, but then they pulled it out of the hat, like have you had any of those kinds of situations?

Laurie Lumenti:

Oh my god, I've had like too many of them. [laugh] I've had mornings where I had to get up at 4 to make sure wires have gone out, and I've had late night phone calls where entrepreneurs have gotten their debit card stolen, or credit card stolen and haven't known what to do. Sometimes, I think we are in a really interesting, and especially with the early stage because there is so much that happens, sometimes I am really a banker, and sometimes I am a councillor, and sometimes I am a dating coach, and sometimes I am everything in between, so, interior decorator [laugh]. I solve all kinds of questions, but, the best stories are really, over the years, I've been doing this since 2001, so I've worked with a lot of companies, a ton of companies, and it's always great seeing them when they are just starting out, and I can't say that you don't know if they are going to make it, but I think generally speaking, I've been really fortunate that a lot of the clients that I have worked with have gone onto great successes, but just seeing them from nothing to where they are literally in their apartments and they have got a team of developers stacked in there to having a big office and going public, that is really phenomenal, or getting acquired, and I've had repeat entrepreneurs that have, once their handcuffs are off, they are already thinking of their next venture, moving onto their next company and some of them, I am working with one right now, where it's like this is dĂŠjĂ -vu [laugh]. The phone is ringing and the bank account is really low and payroll is coming, and what to do, and we have to solve the problem, so I think one of the best things about my job is I love solving problems, so for me, it's a lot of fun, and I fortunately have not been stumped yet.

Scott Orn:

Yeah, that's good. There is different personality types of founders, some are like very hands off and cool characters, and others are very needy and in our job and your job you see kind of the whole cast of characters; I don't really think there is even a co-relation with success, they are just different strokes for different folks, and some people are doing, calling you at midnight trying to figure out how to do a payroll-

Laurie Lumenti:

I haven't done the midnight.

Scott Orn:

But yeah, we get the same kind of stuff, where people are calling aggressively and it's like we are trying to help you, just give us a little time.

Laurie Lumenti:

I think that's the nature of the job though, and I think that entrepreneurs, I mean, as a bank we recognize the fact that entrepreneurs are, they do things in their time, and we try to make ourselves as available as we can to be able to help and help resolve the problems, but we do have to sleep.

Scott Orn:

Yeah, for sure. And I think you made a really good point about your depositors' capital. I think that is really cool, if you think about that because, there is always a temptation to do like the next kind of loan or maybe it's a little aggressive, but thinking about like whose capital that really is, and being true to your roots, is a really smart approach.

Laurie Lumenti:

Yeah, and Square One really has a great reputation, in terms of we've been very disciplined, and I think that comes with the experience, if you look around the bank, a lot of us have been doing this for a really long time and with that, we've seen a lot of ups and downs and it is tempting, there are times where I am like oh my god that company is so great, and we should be lending everything, you know, but I also didn't spend time in casinos and gambling money, so my risk tolerance is a little less in terms of, you know, there is a balance, there really is the right amount of dent with equity, and we work very hard to find that and really to understand the company, subjectives where they are going, the risk around the deal, and to provide the solution that we think will benefit them as well as work for us.

Scott Orn:

Yeah, that is perfect. What are some, are there any new initiatives or things you are working on at Square One, or is it more of a geographical, because, I've seen guys really build out like the southeast and southern California and things like, what is kind of next for you folks, is this kind of continuing?

Laurie Lumenti:

Yeah, we're continuing, and, we've had some new hires around the country, some couple of folks in Chicago, in DC, in the southeast, definitely in the Bay Area we've been growing pretty rapidly, we've got a couple of more people coming onboard this quarter, we are definitely continuing to grow and expand, and with that as well, with different product lines, as well. So, more solutions to help serve our clients as their needs continue to grow, and when you think of payments, and where companies are going relative to the movement of money, there is a lot of opportunity to be innovative.

Scott Orn:

Do you guys do a lot of Fintech stuff, because we are seeing, I think maybe it's cooled off a little bit, but we're still seeing a lot of Fintech companies come through.

Laurie Lumenti:

Yeah, we've got a few Fintech companies in a portfolio, and I would say that we are great with that companies that are not in the MSB category or TPPP category.

Scott Orn:

I don’t know what those are.

Laurie Lumenti:

So an MSB is money services business. And TPPP is a Third Party Payment Provider, so generally, there is a lot more oversight that is required for those companies, they need to be registered and all of that, those are, we are not typically the right solution for them, but if it's a Fintech company that really raises venture funding and they just happen to be serving the financial services space or providing some kind of a solution that is not touching money that requires them to be registered, then we do have a few of those in our portfolio.

Scott Orn:

What is your favorite, you have to have a favorite sector, you've been doing this for a long time.

Laurie Lumenti:

I love them all, probably my strengths are more in the enterprise, enterprise and I do really like Fintech as well but I worked in finance for a really long time, so and I actually did work in a Fintech company back in 2000, it was called iOwn, so this was the two bubbles ago. [laugh] But I am finding that there is so many interesting sectors so I am really fascinated with AR, VR, that whole sector, I think there is so much going on and health care It and digital health, there is a lot of innovation, I am really fascinated by that. I think that, I like them all, truthfully, I a bit of a geek.

Scott Orn:

Yeah, I can vouch that she is very sincere in this. I can see her face.

Laurie Lumenti:

I really, if I had to pick one, it just would be really hard, but, I would say that definitely enterprise is a little stronger just because I have spent so much more of my time in that sector, and when I think about my connections, and network.

Scott Orn:

Well, you are hugely network person, you are a pleasure to work with, we love Square One, recommend Square One, so thank you for taking the time. Do you want to kind of wrap it up a bit, tell people where they can find you, and the Square One sweet spot and the kind of clients you are looking for?

Laurie Lumenti:

Yeah, sure, probably the best place to find me is usually in the coffee shop. So somewhere between Menlo Park and my office, we have an office here in San Francisco as well, but best way to find me is you can email me at llumenti@squareonebank.com, and you can find that on our website, it's squareonebank.com, you can find me there or call me, there is a general enquiry as well, but we look for companies as early on as concepts, if you are just starting at your business and you are looking for a great bank to work with, it's definitely worth giving us a call, and seeing if we are a good fit for you; if you are a company that raised money and you are looking for a new banking solution, we definitely would love the opportunity to talk to you as well, and you guys have been a great partners as well, so I really appreciate it and I appreciate the opportunity to be here.

Scott Orn:

Yeah, thank you so much. Laurie, thank you for coming by, and again, we love Square One, we recommend it, and really appreciate everything you guys have done for us, and done for our clients.

Laurie Lumenti:

Now we are going to go and have some more cookies.

Scott Orn:

Yes, alright, thank you so much.

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