It’s telling that when Comerica Inc. moved into California in 1991 and founded subsidiary Comerica Bank-California, it started off with the acquisition of Plaza Bank, which already had its fingers in the tech sector. Today, Comerica’s high-tech banking group has become a key part of the bank’s operations. Though based in San Jose, the unit has been active in the L.A. market for four years, since Comerica bought out Metrobank of Los Angeles. Comerica has yet to jump into the venture arena directly although plans are in the works for such a strategy. Instead through its two L.A. branch offices, Comerica has found a profitable niche serving local companies that have secured equity investments and have plenty of cash to deposit with the bank. Startups doing business with Comerica are involved in a number of fields, including semiconductors, medical devices, telecommunications, software, digital media, information storage, networking equipment and other areas related to the Internet.
As part of its strategy, Comerica extends credit lines to pre-IPO companies, which use the money primarily to pay for various vendor services, hardware and other assets. In exchange, Comerica gets a depository customer and often negotiates for warrants that could mean big returns down the road. “It’s a huge contributor to the bottom line,” said Bonnie Kehe, senior vice president and regional manager in Southern California for Comerica Bank-California. “(Comerica’s emerging-growth operations) are extremely strong profit-drivers off of a relatively small portfolio. Why? By generating high deposits, which banks need to grow, and warrants.” Comerica hit the jackpot when GeoCities, one of its clients, went public in 1998. Munder Capital Management, which is majority-owned by Comerica, was there to step in and manage a third of the capital raised when GeoCities did its IPO, according to Kehe. Comerica hit the jackpot again in January 1999, when Yahoo bought out GeoCities. Comerica exercised its warrants for less than $10 a share when the shares were trading on the open market at more than $110 apiece. “That clearly can be a sizeable golden goose, but more often than not it does not happen,” Kehe said. Working in the volatile dot-com world has prompted Comerica to take some precautions. It has covenants in place so it can pull its credit line when failure is imminent. If one if its client companies does sink, Comerica works with venture capitalists to merge it with other companies. Comerica also maintains liens on intellectual property rights, including domain names. How does Comerica decide whether a pre-revenue, pre-IPO startup is worth the risk? It follows the money. The bank keeps its eye on which companies are attracting the interest of institutional venture capitalists.
It also analyzes the quality of management teams at firms that approach Comerica and the business models involved. When there’s no historical financials to dissect, it’s all about looking to see which venture capital funds succeed with what kinds of companies. If Comerica officials can make a match between a fund and a startup, it’s in a strong position to get in on the deal. Around the same time that Comerica hit the jackpot with GeoCities, it extended a $6.5 million credit line, mostly for equipment purchases, to Moorpark-based Accelerated Networks, which went public in June of this year and is searching for larger facilities. The company develops products that enable telecom service providers to bundle data, along with delivering voice and fax services for business, over a single access network. First-tier venture capitalists have put several rounds of funding into Accelerated Networks, totaling $40 million. Another $43 million has come from strategic investors interested in eventually buying or having access to the company’s bundling technology, such as Siemens, Williams Communications, and the MCI Worldcom Venture Fund. Accelerated Networks keeps much of that money with Comerica.
