General Bank is a known as a business bank that specializes in trade financing and commercial real estate lending so what's it doing investing in technology-oriented venture capital funds?
Actually, jumping into tech investing was a natural progression for the bank, even if a somewhat slow one, according to Chief Financial Officer Peter Lowe.
General Bank was initially founded by Taiwanese Americans to serve their under-banked community, Lowe said. There is a large contingent of Taiwanese-American entrepreneurs running high-tech companies in the Silicon Valley, and there is a considerable amount of trade between these companies and their contacts in Taiwan. Silicon Valley companies export their goods or components to Taiwan or China, and also may import components.
Hence, parent company GBC Bancorp began to expand to the Bay Area. The company's interest in tech was effectively solidified in 1994, when it opened the first of what are now four branches in the Silicon Valley, Lowe said. In addition to its four Northern California locations, the company's main bank branch, on Sixth Street in downtown L.A., is one of 13 in Southern California. Two General Bank branches are located in Washington state.
With a large presence in the tech-centric Bay Area, it was a natural progression for GBC to start investing in technology. Like most other commercial banks, General Bank doesn't handpick the companies that its money eventually funds; instead, GBC invests in the venture capital funds that invest in up-and-coming companies.
Not all of those funds are located up north. "We've invested in venture capital funds in the Los Angeles area as well as Silicon Valley," Lowe said.
Those funds may not invest exclusively in companies in the specific region where they're located, but the bank does try to focus on funds that concentrate on California, where the company has the majority of its branches.
GBC Bancorp does not disclose the names of funds in which it has invested, though Lowe noted that the company owns a stake in the investment arm of tech incubator Idealab. GBC also invested in Dynafund Ventures' second fund, which closed this February with a total of $160 million from numerous parties.
"They haven't been as involved in traditional venture-type lending until recently," said Tony Hung, a partner at Dynafund. He wouldn't disclose how much General Bank invested, but said a typical investment made by banks in this particular fund was between $500,000 and $2 million.
As for the total number of funds in which the bank has invested, Lowe would say only that it amounts to "several."
From Jan. 1 to June 30, the downtown L.A.-based holding company had made $16.1 million of commitments to invest in venture capital funds and had actually invested $6.5 million of that amount, according to a recent quarterly report from GBC.
The company doesn't break out the revenues it generates through its venture capital investments, nor the money it makes from exercising warrants, but it does disclose an aggregate figure related to venture-related activities. For the six months ended June 30, income from the receipt of securities from venture funds and from the exercising of warrants was $8 million.
GBC Bancorp has disclosed that it currently holds $15.7 million of potential pre-tax income from currently restricted shares of public companies. One company accounts for $14.2 million of that amount. That income is subject to lockup until this December and is still subject to changes in value. "It's volatile," Lowe noted.
As for the future, GBC will be looking to boost its involvement in venture funding.
GBC Bancorp is a financial holding company, and as such it enjoys new freedoms under a recently passed federal law. The legislation allows financial holding companies such as GBC to expand into additional merchant banking opportunities, including direct investments in companies and other investment banking activities.
"We are looking at different strategies," Lowe said. The company will likely not make any official decisions about its investment strategy until the official regulations have been issued; right now, temporary regulations are in place.
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