Future-proof banking: How banks are adjusting their offering to fit the needs of startups

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Future-proof banking: How banks are adjusting their offering to fit the needs of startups

As a startup looking for growth capital, your options are pretty simple: Do you want to relinquish some control of your business for equity financing, or take a loan from the bank and go for it on your own?

Realistically for startups in the tech or software sectors, giving away part of your business may be the only way to secure funds in your early stages. Even if you’ve got a good product-market fit and can prove you’re growing, from a traditional banking perspective, getting a loan can be quite difficult.

ABN AMRO, an international bank founded in the Netherlands is changing this traditional banking mindset. “Financing tech startups is new, so we needed to look at it differently. Over a year ago, knowledge about financing startups was really fragmented,” explained Stephan Ramb, one of ABN AMRO’s relationship managers for Tech, Media, and Telecom companies. “We now have a sector dedicated approach for tech startups so we’re becoming better at helping them,” he continued.

Ramb is well aware of how the traditional banking-mindset can hinder startups. “Normally, a bank looks for collateral in order to provide a loan, but that can be pretty frustrating for a tech startup if they’ve got a proven business model and they’re growing fast. Without assets, a traditional banker may just say no straight away,” he explained.

“Because I see the same type of companies time and time again, I learn much faster and that’s helped me to become a better sparring partner for my clients,” he continued.

An open-minded approach to financing

One startup who’s benefited from ABN AMRO’s modern approach to financing is customer feedback software company Starred. Situated in TQ - our tech hub in the center of Amsterdam - Starred’s business model is subscription based meaning they need to spend a lot to see returns. But, that didn’t stop them from securing a 1.5 million euro loan from ABN AMRO.

Starred's headquarters at TQ in Amsterdam.

“Starred is a Software-as-a-Service (SaaS) company, which means that upfront they have to spend a lot of money to acquire their customers, while they earn money over a period of time via monthly fees. So, they have a recurring turnover and that’s something we really look at because if your whole turnover is contracted, that actually provides value for a bank,” Ramb explained.

Founder of Starred, Lars van Wieren believes you should postpone getting a VC involved for as long as possible.

“You should only raise VC money when your startup is in the third phase of its lifecycle and looking to scale rapidly. Right now, we’re in the second phase, searching for a repeatable, scalable, and profitable growth model, so a loan from ABN AMRO was ideal because there’s no share dilution and less involvement. The downside is that I'm personally liable if things go wrong.”

What made the process of getting a loan easier was the fact that Starred had a WBSO certificate. As Ramb explained: “there’s an incentive from the Dutch government  which states that if you’re an innovative company developing software, the Dutch state wants to stimulate this so you pay less tax.” Having this certificate made Starred eligible for a security from the Dutch government known as the BMKB (Borgstellingskrediet Midden - en Kleinbedrijf), and from a credit perspective, government recognition and support like this makes all the difference.

“The beautiful thing about this BMKB is that it's possible for us to provide a maximum grace period of three years before a company has to start paying a loan back,” explained Ramb. We understand that these innovative companies can’t be cash flow positive straight away because it’s their business model. So, we give them time to make their losses, and then when their cash flow turns positive, that’s when they’ll start paying it back,” he continued.

It’s a case-by-case basis

A farmer and his cow that's wearing Connecterra's Intelligent Dairy Farmer’s Assistant (Ida): a sensor that provides insights that help run a more efficient farm.

Circumstances were very different for Connecterra, another TQ resident who sells software to dairy farmers to provide them with detailed insights about cows. “We were in the process of closing our series A funding, but while that was happening we needed a loan in order to manufacture the hardware we were selling,” explained Marjolein van Hage, Connecterra’s finance manager.  

“I saw some loan options on the ABN AMRO website, however, our relationship manager at the time who was used to dealing with big commercial clients told us a loan wouldn’t be possible.”

Given the circumstances, Van Hage decided to reach out to Marijn Mennes, ABN AMRO’s Startup Liaison stationed at TQ.

"Being at TQ meant we were familiar with  Connecterra. We’d seen them win a Google Demo day and we saw their appearance on the BBC. Plus, being in the community meant we’d spoken to Marjolein before, so we had more context and feeling about Connecterra's situation. This made us confident in putting all our effort into investigating why a loan wasn’t possible previously, and to see if we could change that," explained Mennes.

Mike Todirijo, Owner of the Startup Proposition for ABN AMRO who works alongside Mennes added: "After deep-diving and challenging our internal traditional processes, we took a different approach. We teamed up with Kelly van Berge, a Tech, Media, and Telecoms relationship manager and colleague of Ramb, more suited to Connecterra's needs. And, in the meantime, Connecterra received a grant which made the process of getting a loan much easier”.

“The grant we received was part of Horizon 2020, one of the EU’s biggest research and innovation programmes,” explained Van Hage. “I wouldn't say getting the loan was easy, but once the bank knew we had the EU grant and that the money was coming in, that definitely sped up the process. It was good timing while we were closing our series A funding.”

However, receiving a grant isn’t the only important factor ABN AMRO considers when determining whether an early stage startup is eligible for financing. “Every company is different, so other than checking recurring revenue and the finance report, hearing about the founder and what the story is behind the business model - that’s very important to us,” explained Van Berge.

“We looked at Connecterra’s financials and could see they’re growing fast. We know they’ve made big steps over the last two years. I spoke with Yasir Khokhar, Connecterra’s CEO and I know that he has a lot of positive exposure going on.”

Van Hage is optimistic about more debt financing for Connecterra in the future. “As we’re a capital-intensive business, we need capital upfront to manufacture the physical sensors we provide to our customers. So for us, a loan like this was the first step in the right direction.”

Startup Liaisons at TQ: Corporates with an entrepreneurial mindset

Startup Liaison, Marijn Mennes, and Owner of the Startup Proposition, Mike Todirijo, both ABN AMRO employees stationed at TQ.

When we established our tech hub in Amsterdam in 2016, we partnered with corporates such as ABN AMRO to provide residents with the knowledge, expertise, and network to push them to exponential growth. To enable this even further, ABN AMRO created a brand new role known as a Startup Liaison: a point of contact stationed at TQ exclusively to support startups through.

Mennes, a Startup Liaison with an entrepreneurial background explained: “We’re a bank with a lot of corporate power, knowledge, skilled people, products, and services that can be used to benefit startups. However, there’s a big cultural difference between both parties so they need the right incentive to start winning together. Corporates tend to be a bit slower and have a different mindset when it comes to doing business. Startups, on the other hand, do things today and tomorrow, and preferably want things cheap. My role is trying to bridge that gap.”

Todirijo is a customer developer responsible for the startup proposition for ABN AMRO. He believes one of the main benefits of being positioned in a tech hub is expectation management. “If you’re an entrepreneur with a startup and you fill in some forms online to get a loan, there’s a slim chance you’ll actually get one. If you reach out through us, we can help you understand your options, we know the right people to connect you to, and we can help you  avoid frustration by explaining the details and timeframes upfront”.

Van Hage from Connecterra has experienced these benefits first hand. “Our loan wouldn’t have been possible without Mike and Marijn offering us a hand. When we thought it wasn’t possible, that’s when Mike and Marijn pulled through.”

However, not every deal Mennes and Todirijo have been involved in has been successful. As Mennes explained: “In early 2017, we tried to get funding for several startups in TQ but I noticed internally there weren’t any possibilities to finance SaaS companies. With an online store with no bricks and mortar, and no stock on the shelves, you can’t really finance a startup with the old model. So we needed a new approach.”

Mennes discussing various growth challenges at Traction: a matchmaking event with corporates and startups designed to help startups gain momentum.

Todirijo continued: “We hope to be part of more deals like that of Connecterra and Starred. And we want to do more experiments. We hope that one of those experiments - matching startups with ABN AMRO clients for example -  pays off so we can really add value beyond what's normally associated with a bank's service. Because that’s why we’re here. To add value to the community, to scale-ups, to the economy, and the Amsterdam/Dutch ecosystem.”

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