New Startup-Focused Bank Gets More Than $100 Million From Investors -- Update

05/30/19 08:04 AM EDT
By Telis Demos 

A group of investors has bet more than $100 million on a new digital bank that is looking to tap into the growth of technology startups and the venture-capital firms that fund them.

New York-based Grasshopper Bancorp Inc. opened for business in May with plans to challenge Silicon Valley Bank as a go-to financier for startups.

It recently raised $116 million from investors including T. Rowe Price Group Inc. funds, Patriot Financial Partners LP, Endeavour Capital Advisors Inc. and FJ Capital Management LLC, the company said. Hamilton Lane Inc., the alternative investment manager, also invested on behalf of the New York State Common Retirement Fund.

In total, it has raised $131 million, including an earlier seed fundraising.

New banks are a rarity in the U.S. The number of bank charters issued by U.S. regulators has fallen sharply over the past decade, largely a result of ultralow interest rates that crimp profitability and the dominance of giant lenders that can spend billions of dollars on technology. Financial-technology companies looking to get into the business usually partner with established banks rather than apply for their own charters.

Grasshopper and its ilk are known as venture banks. They typically take deposits from startups that have raised money from venture-capital investors and from venture-capital firms themselves. Loans to often fragile young startups are secured in part by that cash. Grasshopper also aims to lend to more established companies investing in new technology.

Grasshopper Chief Executive Judith Erwin said she believes that the barriers for new entrants to the banking business are falling, as cloud computing and improvements in banking software enable upstarts to provide an expanded slate of services and compete with even the biggest lenders.

"Now there are newer technologies to take advantage of," said Ms. Erwin, who co-founded North Carolina-based Square 1 Financial, another bank focused on startups that merged with PacWest Bancorp in 2015.

Grasshopper, for example, has built a new system for monitoring the a startup's cash burn. The system, Ms. Erwin said, should help the bank make quicker lending decisions and determine when it needs to cut off a borrower's access to credit.

"Big banks haven't had the ability to monitor cash in real time because of their systems," she said.

Write to Telis Demos at telis.demos@wsj.com

 

(END) Dow Jones Newswires

May 30, 2019 08:04 ET (12:04 GMT)

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