July 24, 2012 | 3 minutes read( 596words)
Choosing a banking solution is one of the most important decisions you’re going to make as a start-up. You’re not just choosing a bank: you’re choosing a partner. When you’re looking for a bank, you want one that will help you to manage your cash flow and minimize your risks. You also want one that will help you with investments, including capital preservation and return. On the surface, most banks look the same—with online banking solutions and pretty much the same rates for financial products and services.
But the real differences usually lie in the less tangible aspects. Let’s take a look at some of the things you should look out for and consider as you choose your banking solution.
Focus/Industry Expertise - Some banks have a strong focus on early-stage technology firms and really understand their particular needs. You want a bank that has this type of focus, that can help you with the specific financial needs of a start-up, including programs to help you fund-raise.
Connections - When researching banking solutions, you’ll want to understand the special programs they have for early-stage companies such as networking events, partnership opportunities and potential introductions. In different geographic areas, the programs offered will differ, as will your particular needs. But, whether you’re in the Bay Area or Boston, your banking partner will play an important role in your networking. Introductions from bankers is huge and not to be underestimated for its assistance in your fundraising (both VCs and Angels) and for forging other potential partnerships.
Venture Debt - Certain banks provide venture debt, which is debt that has an equity component and is not necessarily tied to an AR or equipment line. You’ll need flexible lending so you can get capital when you need it.
If you are an early-stage entrepreneur, you really should try to get venture debt because it gives you runway to increase the valuation of your company. When you’re just starting out, you need capital. Your company may not be worth much yet, but if someone gives you $1M, you can do a heck of a lot in terms of creating value. When you go out to raise equity rounds, your company will be worth a lot more after you have spent that $1M than it was before you got that cash infusion.
Contact Early Growth Financial Services with questions about venture debt and other early-stage start-up financial issues.
Banking Relationship - You should meet different bankers and know who your contact will be. You want to work with relationship managers who understand—and have experience working with—entrepreneurs, like you, of venture-backed companies.
There’s no one-size-fits-all approach when it comes to sorting out your banking solution. You just need to take the time to do the up-front research to find the best bank partner to help take your company to the next level.
Which banking solution did you choose and why? Or are you still figuring it out? Let us know in comments below or contact Early Growth Financial Services for help identifying your best banking solution.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of financial and accounting services to companies at every stage of the development process. He's a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.