Recently a young high-tech entrepreneur was in my office, and very frustrated. He urgently needed to issue special bank guarantees for a supplier in Asia to rush a shipment. The delivery was a critical component for a new system he was developing. Everything else was in place except one minor detail: no bank guarantee and therefore no way to meet the deadline. Fortunately, LeumiTech was able to support this entrepreneur so he didn’t miss out on an once-in-a-lifetime opportunity to keep his start-up afloat.

Securing financing for this early stage technology company was clearly make or break. What was even clearer was the immense difficulty that this entrepreneur experienced trying to obtain financial support. This is because while the high-tech industry has seen unprecedented global development, our traditional financial systems haven’t adjusted to keep pace.

Banks are conservative organisations who are bound by regulation and process, so when banks encounter the high-tech industry, complete with variable risk factors and fast-paced, agile operations from all over the world, it’s often a shock to their systems.

First time founders of early stage technology companies tend to have minimal financial experience. In many cases it may be the first time they are opening a corporate bank account and it’s often unlikely they’re familiar with the world of credit facilities and bank guarantees.

Worlds apart

The needs of emerging high-tech enterprises are worlds apart from more traditional corporations, which banks are more accustomed to. Many start-ups, for example, operate around the clock, and so business hours are long and with abundant financial needs. Start-ups also rarely have a Chief Financial Officer in place and will almost always begin operating at a loss and in constant search of funding.

Banks serving these businesses must genuinely understand these needs and adapt their approach to give the start-up the best chance of achieving the best results - from the financial products and services it provides, to the skillset of the staff it employs. Even the language of entrepreneurs is not compatible with the typical banker. The key to bridging these gaps lies with the bank’s willingness and ability to learn how the new high-tech ecosystem operates. Only this will allow a universal, genuine understanding between bank and customer.

The road to high-tech high growth

The high-tech ecosystem consists mostly of start-ups founded by young individuals who crave personal, direct and around-the-clock contact with their financial adviser. This builds a close relationship where the banker is intimately acquainted with the business, its characteristics and its managers. The bank can then guide the start-up and support them with their financial needs from the initial stages of development. To deliver an adapted service, the banker has to be in a position to provide overseas banking services, facilitate the execution of complex digital banking transactions and to offer solutions typical for the investor environment of the high-tech world, like venture capitalists. Banks must provide a carefully tailored package of financial services for each stage in the start-up's lifecycle.

A high-tech bank must also support its customers throughout the company’s development, advising them on how to safeguard investor funds and make optimal use of money received. The bank will likely need to support the company through various aspects of geopolitical trends, changes in tax policies in different countries and grapple with the impact of macro processes on the business. In addition, banks specialising in high-tech should offer customers links and connections within the industry to potential investors and designated platforms.

At a pricing level, banking that is properly tailored to the high-tech world will know to offer customers a flexible and individually tailored cost structure, bridge loans to tide them over until raised funds arrive from investors or from government grants, as well as specialised credit products. For example, when evaluating a credit deal, the creditor must take into consideration the lengthy development period and the sizable investments these companies must make. High-tech companies essentially "sacrifice” profitability for the sake of high growth rates (growth of tens and even hundreds of percent per year). If banks fail to adapt their credit policies to meet the needs of high-tech companies, they will fail to provide the right credit solutions.

Start-ups need a bank that genuinely understands its customer. This may not be simple when each customer has unique characteristics, but if the bank is willing to adopt a high-tech mentality, and accept the risk profile in order to support this unique ecosystem, then banking should only help start-ups to succeed.