Tech startups don’t rely on banks for loans
One suggestion is to build ‘ better packages’
Itrekked downtown the other day for what should have been a dynamite show. As part of a series of “Canada 150” luncheons exploring the nation’s future, the CEO of Canada’s biggest bank was speaking on a panel with three young tech entrepreneurs.
I was hoping for fireworks. Dave McKay, president and CEO of RBC, who joined the bank as a COBOL programmer, seems to understand the importance of entrepreneurship and innovation, and the banks have always touted their key role in building the Canadian economy.
But I haven’t seen RBC, or any other bank, do anything innovative in the space for some time, so I was hoping for either a major announcement or controversial confrontations. We got neither.
McKay gamely asked about the startups’ origin stories and biggest challenges. But in the conversation, and the ensuing question period, nobody mentioned the banks’ role in assisting startups. Is this because the banks are doing a good job, or because, in the new era of fintech, traditional banks are growing less relevant to entrepreneurs? I tried to ask about this in the Q& A, but was told the media were not allowed to ask questions.
McKay declined to meet with me after the event. But I did speak with the three entrepreneurs about their banking experiences, and how banks could better aid small business. Their experiences prove that small- business banking is still a work in progress, and deserves the attention of every bank CEO.
Mallorie Brodie, co-founder and CEO of Kitchener, Ont.- based Bridgit, said the banks haven’t done much f or her company, which developed a wireless- communications systems for construction projects. As a startup in the Next 36 program, Bridgit received an introduction to the TD Bank, which provided a standard package of banking services. For capital, however, the company uses angel investment.
Asked how t he banks could improve, Brodie suggested they develop better packages to serve tech startups. “It’s up to them to decide if that’s a space they want to play in, but I don’t think the vehicles they have now are equivalent to what you can get from angels or venture investors.”
Would she l i ke to see banks do more for technology companies? “I don’t feel like there’s this large void,” Brodie said. “Maybe that’s because I’m not of the generation that relied on banks for providing capital.”
“To be fair, banks aren’t that meaningful to our business. We have an operating account — a Canadian one and an American one. We put money in and we take money out,” explained Wisam Abdulla, co- founder and CEO of Hazel, a threemonth- old Vancouver startup that is developing a human-resources platform that focuses on employee engagement. It’s a spinoff of Rise, a payroll- software system he launched in 2012.
But as Canadians struggle to build a more entrepre- neurial society, the banks have to find new ways to fund these businesses, Abdulla said. “If nobody is out there giving you resources, it’s hard to get something off the ground… For us, even simple things like a credit card involved hopping through a lot of hoops.”
Abdulla praised RBC for having a specialist team that understands today’s startups. “Technology companies are unique, in that we typically lose money for the l i fe of the company,” he said. “We take investor money, with the plan to lose money so that we can grow. But then when you try to get a loan, or credit cards, ‘ But you’re losing money,’ even though you may have millions in t he bank. If banks started being more friendly to the dynamics we operate in, that would be more helpful.”
Lauren Friese, founder of Talent Egg, a careerplanning platform for postsecondary students she sold in 2015, still bristles when recalling her bank experiences. Her most common interaction with a bank involved depositing cheques through the ATM, to avoid having to talk to branch staff. “I was being treated like the way I look, which is youthful. People would ask questions like, ‘ Who is the owner of the business?’ I didn’t want to explain to somebody why I have these cheques.”
Friese doesn’ t understand why no one at the bank ever noticed her business’s growth and offered to help. “They could have told me how to invest some of the cash in our deposits, or how we could take advantage of low interest rates to grow our business more quickly.”
Bankers only start taking her seriously toward the very end, “when I was able to have good relationships with my bank’s commercial banking division,” and that new status sprang from an introduction by a business acquaintance, not the bank.
As someone who had used f ew bank products ( she never touched her line of credit), Friese was surprised to see how much she’d missed. “Once I was with the commercial bank, we started talking about different options and opportunities that could be very useful to me. I wish I had known about them earlier on.”