Imperial looks to finance wedding between Hollywood, Silicon Valley.

Survival in the banking industry means creating a niche market and knowing more about that niche than any other bank in town.

Imperial Bank has jumped into funding the marriage of high technology with entertainment and is hoping to cash in big by being the first Los Angeles-area bank to really exploit that niche.

If successful, Inglewood-based Imperial may redefine the future of entertainment banking as it is known in Los Angeles.

Beverly Hills-based City National Bank has been known for years as the bank to the entertainment industry. Its focus, however, has been on financing film production and providing private banking services to wealthy individuals involved in entertainment. City National's entertainment group has expressed an interest in financing video game development. However, the main focus there is still on production and private banking.

In general, high technology is too risky," said Martha Henderson, executive vice president at City National and manager of the bank's entertainment division. Henderson explained that most high-tech companies are start-ups with little credit history, which makes the financing riskier.

Imperial, on the other hand, remains undaunted by the risk and is pumping its cash into start-ups. The future of the entertainment industry is in these entrepreneurial firms, according to Imperial's Multimedia Division Senior Vice President Morgan Rector. While many of the high-tech start-up companies are software developers in the Silicon Valley, they are still likely to be considered for funding from Imperial. Just about a year ago, Imperial opened a branch office in San Jose to facilitate funding to Northern California's high-tech community.

Rector called the bank's foray into financing new entertainment-related technologies a "natural progression."

"Our customers were showing us that they are going in that direction," Rector said.

Funding the marriage between high technology and Hollywood has presented the bank with unusual challenges, the first being that most of the software companies developing game technology are new in business and run by young people with no proven track records. So, one of Imperial's major chores has been to identify the potential winners in the video game arena. "One of the things we have done is to develop ties with investment bankers and venture capitalists to try to find (potential winners among the start-ups)," said Rector.

Teaming up with venture capitalists and investment bankers has served a dual purpose. Besides helping Imperial to identify potential winners, it has also helped the bank reduce its exposure to risk because the venture capitalists and investment bankers often join Imperial in financing the start-ups.

"Most of the players are young and lack a significant operating history, which is typically anathema to what a bank is looking for in a new borrower. We are looking for the capitalization of the company to make up for the lack of their operating history," said Rector. "If there is some capital there, that helps to keep the regulators at bay."

Imperial is taking other measures to help reduce its exposure to risk from its young clientele, according to Rector. One measure was the recent establishment of its San Jose office. The bank's entertainment division, which is housed in Beverly Hills, works in conjunction with the office in the Silicon Valley. Both offices are able to exploit their comparative advantages by doing so.

The entertainment group is able to exploit its contacts in Hollywood and can help match its clients up with high-tech companies in Northern California through the Silicon Valley office. "One of the things high-tech software developers are looking for is product," said Rector. Game developers are turning more and more to Hollywood for characters and plots to use in their new video games.

The entertainment division, through its experience in the field, also offers help to the bank's high-tech clients on ways clients can protect their products. Rector said, for example, Imperial advises its clients on how to secure intellectual property rights to ensure that the company's products are not pirated by competitors.

Although it is mainly video game development that is coming out of the marriage between Hollywood and Silicon Valley, it is not the only area of possible investment. According to Sam Bhaumik, a vice president at Imperial's Silicon Valley office, the venture capital community is expressing interest in sinking cash into companies that are developing new sound and video technologies. In short, opportunities abound. "There is tremendous interest from venture capitalists to invest in multimedia, in game development and elsewhere," said Bhaumik. Imperial expects to be in the game for some time to come.