Durham’s Square 1 Bank looks to go public

Jan. 07, 2014 @ 06:04 PM

The parent company of Durham-based Square 1 Bank, an approximately eight-year-old commercial bank that serves start-up companies and the venture firms that invest in them, plans to raise $57.5 million in an initial public offering of stock.

According to a registration document filed with the U.S. Securities and Exchange Commission, Square 1 Bank officials plan to use the money raised in the initial public offering to support its long-term growth in light of higher global banking standards, and for other reasons.

A group of venture and commercial bankers founded the bank in 2005, according to the filing. It’s looking to fill what it sees as an underserved market in providing banking services to entrepreneurial companies and venture firms, and to provide competition for the venture banking-focused Silicon Valley Bank.

It its short history, the bank said it’s been able to penetrate the market in key U.S. entrepreneurial hubs. It had 226 full-time employees as of Sept. 30 of last year, and offices in California’s Silicon Valley; San Diego; Los Angeles; Boston; Austin, Texas; in the Washington D.C. area; Denver; New York City and Seattle. Its headquarters is in downtown Durham.

It touted its expertise in lending and providing deposit or cash services that cater to the specific needs of entrepreneurial companies, and said it has controls in place monitor companies’ investor reserves, companies’ cash burn rates and non-financial metrics. The bank said those controls are needed since it lends to start-up or expansion-stage companies that may not have a steady stream of income or that may not have reached profitability yet.

“Given the industry and market in which we operate, and the specialized expertise in lending to venture-backed companies that is required to lend successfully in this market, we believe this market is generally underserved, and, as such, provides us with an opportunity to continue our strong growth and profitability,” the company said in the statement. “While there are other banks that will provide deposit and lending services to entrepreneurial companies, most of these banks do not specialize in lending and deposit/cash services tailored to the specific needs of these types of entrepreneurial companies,” the statement also said.

The bank was initially chartered with $105 million raised in a private stock placement. It raised another $60.9 million through private stock placements in 2008 and 2010, and another $23.2 million in 2012.

It saw financial losses in 2008 and in 2010, but it has been profitable since. The bank reported a net income of $19.3 million for the first 11 months of 2013, which was up 54.3 percent compared to the same period in 2012. Its total assets were up 31 percent to $2.4 billion through November of last year, and its total liabilities were up 34 percent to about $2.2 billion.

Square 1 Financial Inc. is one of three Triangle companies that have filed to go public recently, behind Durham-based Argos Therapeutics, a biopharmaceutical company that’s working to develop a kidney cancer treatment, and NephroGenex, a Research Triangle Park-based pharmaceutical company that’s looking to raise money for clinical trials for a drug designed to slow a diabetes-caused degenerative kidney disease.

Last year, North Carolina saw a strong year in terms of IPOs, according to an email from Kathleen Smith, a principal with Renaissance Capital, a global IPO investment advisor. There were 10 IPOs in the state in 2013, according to Smith. That’s up from 2012, when she said one IPO was completed.

The increase in activity was driven by the strong returns received by IPO investors in the year, she said. For 2013, she said the IPO Index, which is tracked by the Renaissance IPO ETF, was up 54.3 percent, and the Renaissance Capital Global IPO Fund was up 51 percent. Among the 59 holdings in the Renassiance IPO ETF are North Carolina’s Quintiles Transnational, Charlotte’s Extended Stay America, and the Hickory-based telecommunications firm CommScope.