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Published in U.S. 1 Newspaper on March 29, 2000. All rights reserved.
Progress in Banking For Entrepreneurs: Kathleen Coviello
As banks merge and get bigger, the second tier banks
— usually not involved in the mega mergers — are fond of the
mantra "Smaller is Better." When it comes to lending money
to entrepreneurs, smaller is especially helpful, say many in the venture
Representing one of these smaller banks is Kathleen Coviello,
vice president of Progress Bank’s specialized lending unit for emerging
growth technology and healthcare companies. Coviello will open a Princeton
office for this unit in June. She and Steve Hobman, senior vice
president of the unit, have been invited to speak at the New Jersey
Entrepreneurial Network (NJEN) on Wednesday, April 5, at noon at the
Doral Forrestal. Cost: $45. Call 609-279-0010.
The big banks, encumbered as they are with mergers and shuffling around,
just don’t "get it," says Dan Conley, known as a "venture
catalyst" with Silicon Garden Angels + Investors Network (E-mail:
firstname.lastname@example.org). In fact, many banks managed to make enemies
in the entrepreneurial community: "The banking industry underwent
such terrible fractures that it seemed to the entrepreneurial community
that — because of bank instability — bankers always lied."
That may be why the NJEN podium has seen few bankers. "Many have
asked, but none have been called," says Conley.
"The big banks got bigger and left lots of room in the middle
for small and medium-sized banks to fill," says Hobman, an alumnus
of Franklin and Marshall, Class of 1983. Based in Blue Bell, Pennsylvania,
Progress Bank is known for its ability to work with venture-backed
emerging growth businesses.
Progress has its roots in Norristown, Pennsylvania, from a century
ago; it went public in 1983, and until four years ago was known as
Progress Federal Savings. As a thrift bank it has an unusual focus
on banking services for small to medium businesses and entrepreneurs,
and it qualifies as a New Jersey Economic Development Authority approved
Progress loans range from $250,000 on the low side to the high side
of $5 or $6 million, but they average $1 million. The bank likes to
loan money to companies that have started to generate revenue. These
firms don’t have to be making a profit yet, but they should have from
$1 to $3 million in revenue, and they probably have had at least one
round of angel financing and one round of venture capital financing.
Of the 80 companies that currently have Progress loans, 10 are in
New Jersey, including Immedica in Chatham, Call Processing Solutions
in Randolph, and M Corp. in Edison. Its major competition lending
to young high tech companies is the Philadelphia branch of a California
institution, Silicon Valley Bank.
The time it takes to make a loan depends on how available the information
is. "It can go as quickly as three to four weeks or as long as
two years," says Coviello. "If we like a deal and we are in
a good position we can turn things around in a matter of days. We
don’t hand deals off. One person handles a deal from start to finish,
and for all New Jersey clients, that is myself."
Coviello majored in business administration at Albright, Class of
1988, and focused on finance and accounting for her MBA at LaSalle.
Her mother was a bank teller and her father was the vice president
of an international plastics distribution firm. She is part of Hobman’s
"We understand the dynamics of the VCs (venture capitalists),
but we are not VCs," says Coviello. "We still take collateral,
still expect to be repaid, and we still do senior debt financing"
(meaning that the bank gets repaid before the investors do). Loans
to early stage companies cost more than to established companies because
they carry more risk, but sometimes Progress can structure a loan
so that part of the payback includes warrants (options to buy stock
if the company turns successful).
If the company has raised any institutional venture capital money,
that is a testimony and part of the process. If the company has no
revenue and its business model is still in development, Progress bankers
are still willing to get started with the company and provide helpful
In the meantime, Progress can provide other services, such as electronic
deposit, leasing equipment, and investment management. Progress Bank
has another subsidiary that does venture capital investments of from
$1 to $4 million. In 1997 Progress Capital Management began one fund,
Ben Franklin Progress Capital Fund, and its newest fund is in healthcare
and information technology, NewSpring Venture.
Coviello says she likes to watch a company grow from early stages
to a successful IPO — "especially when you see a management
team enjoy the fruits of the labors." To pick winners, she says,
"we look at the management teams, at who their investors are,
and their track record. Management is key. We want to know how much
money management has put into the company."
The worries for her job are "whether I am going to get repaid,
whether I will keep my reputation in the organization." So far
Coviello hasn’t had one go bad.
But some investments have endured a roller coaster ride. "We’ve
been fortunate with working through these companies — by being
patient, sometimes lending them more money, or opening up doors to
investors, or by giving them alternative suggestions such as selling
the company," says Hobson. "We don’t get involved in managing
the company, but we have had enough experience so we can help. If
you are working with good management teams and good investors in those
companies you will work through those issues."
It all hinges on the honesty of the management team. "It’s a matter
of communication," says Coviello, "whether they will call
and tell you about the problem." Deciding whether someone is honest
is partly just common sense, she says. For starters, if someone does
not return phone calls, that’s a bad sign.
Every banker can respond to good situations, but Conley recalls one
deal that was less successful. In spite of this, he says Progress
Bank did a good job of working with the entrepreneurial team. "They
stayed above the fray of the battle when things got bad. They are
sophisticated lenders with passion and compassion. That’s why we are
opening the door for these guys."
— Barbara Fox
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