National Post (National Edition)
RBC, Espresso deal could jolt f intech lending
Aimedat Canadian tech entrepreneurs
In what is understood to be the first of its kind for both parties, two providers — one the country’s largest bank and the other a privately-held fintech company that provides venture debt to technology companies — have teamed up to create a national “strategic partnership.”
The Royal Bank of Canada, believed to be the country’s largest technology banker and which typically provides first lien secured debt, and Espresso Capital, which typically furnishes second line secured debt, are the two parties behind the partnership.
That partnership, the RBC said, “represents another way” for it to deliver “differentiated solutions that meet the needs of the Canadian technology sector.”
RBC noted that technology companies “have a unique set of needs and we are continually looking to evolve our offerings for businesses in all stages of their growth journey.” In short, by combining capital and banking solutions with industry expertise, the hope is “to support even more Canadian technology entrepreneurs to scale and accelerate their growth.”
Espresso, which has three Canadian offices, was not a random choice for RBC, which has had “a positive, long-standing working relationship” of many years with Espresso. “Our complementary strengths provide a strong value proposition for technology clients,” the bank said.
Alkarim Jivraj, chief executive of Espresso Capital, which has financed about 230 technology companies since being formed in 2009, said the partnership will offer ”a truly differentiated lending solution for fast growing companies.”
The partnership, he added, will combine RBC’S “best-in-class lending and banking capability and global networks with Espresso’s true venture debt capability.” The “integration” will “be super efficient” for companies seeking to match their debt needs with the stages of their development.
“We benefit from the breadth and reach of their system and relationships and to help broaden awareness of the value proposition that is venture debt,” noted Jivraj, adding that both parties will bring customers and lending capability. “The idea is that our teams will work together in a market-facing partnership,” even though there is no revenuesharing.
Recently, Espresso broadened its lending to provide clients with loans equal to up to 24 months of recurring revenue. Previously Espresso, which raises capital from high net worth individuals and lends it on, would lend up to 12 months of recurring revenue.
Jivraj said the increase into the amounts being lent was made “to better match the lending program with the value creation trajectory of some of our investee companies,” which are now “earning a better leverage because they are performing so well.”
Jivraj termed the new expanded lending development “smarter lending” and not taking on more risk. “In our lending decisions, we always balance two things: How do we get the best lending solutions into the hands of our borrowers while not exposing our investors to undue risk,” a balance he says is helped by Espresso’s “data-driven approach."
“We are small and nimble” and not in the business of lending to own, he added.
Accordingly Espresso is selective as to which companies it provides venture debt, a category of capital that allows the founders to retain economic and strategic control over their company longer than if they were to fund with equity alone.
Currently Espresso has about $100 million in loans outstanding. On average, each loan, which is a revolver and comes with a threeyear term and an interest rate in the low to mid-teens, is about $2 million.
Royal has some other irons in the fire. For instance it has committed $100 million to fintech-focused venture funds and startups to further new technologies and pursue emerging trends. As well it has been a founding partner for many incubator and accelerator programs and is a strong supporter of events that bring together ecosystem participants.