Huntington Capital and Other Venture Lenders Thriving, Despite Credit Crunch

10/16/08Follow @bvbigelow

Unlike a lot of bankers these days, Tim Bubnack of San Diego’s Huntington Capital is pretty upbeat about his business.

“It’s an exciting time for us,” Bubnack said between meetings yesterday. “While the credit markets are seizing up, we’re providing growth capital that allows companies to continue to expand, grow their businesses, and in some cases, to execute buyouts.”

Privately held Huntington Capital, which specializes in “venture lending,” seems to be thriving despite the credit crunch and broader financial woes that have sent markets tumbling and pushed the U.S. economy toward recession.

Conventional banks have clamped down on lending as bad home loans and other credit problems morphed into an international banking crisis in confidence and an acute worldwide shortage of liquidity.

But Bubnack says Huntington, which has no exposure to subprime loans or the troubled financial instruments at the core of the U.S. credit crisis, has not been subjected to the same economic pressures.

While it is small—the firm has raised about $80 million from institutional investors for its second venture-lending fund—Huntington Capital is hardly alone.

In the San Diego offices of Silicon Valley Bank, a venture lender focused solely on technology and biotechnology companies, senior relationship manager Andy Pelletier says, “We’re actively closing loans and seeing a significant uptick in activity.” Pelletier said he could not be more specific, noting that Silicon Valley Bank is publicly traded.

Hercules Technology Growth Capital also is seeing “unprecedented deal flow,” although Manuel Henriquez, a co-founder and the firm’s chairman and chief executive, says that doesn’t mean Hercules is making an unprecedented number of venture loans.

“We are busier than we have ever been—but we also are being cautious about the duration of this winter storm,” Henriquez says.

Hercules typically joins with venture capital firms in funding technology startups, which gives the new company a mix of equity investors and debt. At a time when some prominent venture capital firms are warning their companies to manage for hard times, Henriquez says he also is advising his “portfolio companies” to batten down the hatches.

“Even though we’re in the debt business, we’re telling people to use less debt,” Henriquez said. “It’s extremely expensive now. If you don’t need debt right away, you should wait 60, 90, 120 days.”

Companies that specialize in venture lending have thrived in part because they typically assume more risk in their deals than conventional lenders, which require borrowers to meet certain criteria or hold sufficient collateral before they will make a loan.

Venture lenders are willing to overlook conventional loan requirements, providing that borrowers have other positive characteristics, such as strong sales and positive cash flow. Such discretion … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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