Multi-Pronged Strategy Is Paying Off in Venture Deals.

BY way of its various subsidiaries and divisions, Inglewood-based Imperial Bancorp has a strong and increasingly lucrative presence in the venture capital world.

Through Imperial Creditcorp, the corporation is invested in a number of VC funds. Secondly, through Imperial Ventures Inc., it's a direct investor in VC-backed companies. Finally, through its Emerging Growth Division, it provides customized financial services and lines of credit to VC-backed companies.

The company's diversification into new markets, both as an investor and as a service provider, has started to pay off handsomely. For the six months ended June 30, 2000, Imperial reported $26.5 million in revenue from its equity investments and the exercise of warrants, up sharply from $8.2 million for the like period of 1999.

And as the bank continues to expand its presence as a service provider to emerging-growth companies, the level of investments is likely to follow suit.

"We've certainly stepped it up in the last year," said James Rutter, president both of Imperial Creditcorp and Imperial Ventures Inc. "Imperial Ventures invested more this year than in the previous 23 years we've been organized, and a lot of the deal flow is generated through the emerging-growth banking division."

'Chinese walls'

As of June 30, Imperial Ventures had invested $6.2 million in 28 emerging-growth companies. Imperial Creditcorp, meanwhile, had invested $23 million in 41 VC funds.

The stepped-up level of direct VC investments follows on the heels of the rapid expansion of Imperial's emerging-growth division, according to Rutter. Although Imperial Ventures is independently managed, and doesn't automatically invest in all the companies that use the emerging-growth division's commercial banking services, the VC subsidiary benefits nonetheless from its affiliation with the growth unit.

"(The emerging-growth division) built up a nationwide commercial banking enterprise, which gives us access to a wide variety of companies and VC firms," said Rutter. "We maintain Chinese walls between our operations, however, and we are not going to make investment to help out a company which has troubled loans with our bank."

The size of Imperial Ventures investments range from $100,000 to $1 million and are typically part of a second or third round of financing led by a VC firm. It's not unusual for Imperial Ventures to team up with a venture capital firm that Imperial Creditcorp is invested in as well, Rutter said.

Imperial's emerging-growth division was formed in 1993 to provide for the unique financial needs of fast-growing, new technology companies, as well as for those of the VC firms that back them.

"We help VC-backed companies to leverage their venture capital by providing them with various financing vehicles, from bridge financing, to letters of credit, to corporate credit cards," said Michael David, managing director of the venture capital services group within Imperial's emerging-growth division.

Paying the rent

For example, if a start-up company needs to lease office or research and, development space, it's not unusual, particularly in the Bay Area, that they need to pay the cost of a one-year lease upfront. Rather than having the company spend its precious venture capital on rent, Imperial would provide it with a letter of credit for the amount of the lease.

In exchange for providing startups with these types of potentially risky lines of credit, Imperial gets warrants, or stock options, which it can cash in if and when the company goes public or is acquired.

As of June 30, Imperial had warrant positions in 398 companies, up from 300 companies at the end of 1999, and the estimated value of its warrant portfolio was $29.8 million as of the end of June.

In spite of the current less-than-robust IPO climate, David does not expect Imperial to become more reluctant to open lines of credit backed by warrants.

"We will continue to make these kind of deals because we're in it for the long haul," said David. "The typical cycle to market for the companies we're working with is four to five years."

Imperial's emerging-growth division is based in Menlo Park and has 13 offices nationwide, including newly opened facilities in Dallas, Denver, New York City, Phoenix and Raleigh-Durham, N.C. Among the division' s more well-known clients are Yahoo Inc., eBay Inc. and Excite@Home Corp.