In a rare move, Battery Ventures, Andreessen Horowitz and Ribbit Capital, investors in a number of Silicon Valley’s fintech startups, have backed the bank enabling many of their investments to lurch forward. Cross River Bank, the obscure financial institution that seemingly everyone in fintech has heard of but doesn’t really know, originated more than $2.4 billion in loans for companies like Affirm and Upstart in 2015 alone.
Today’s $28 million round is set to strengthen CRB’s capital base and support new business lines for companies reliant on the bank for loan underwriting. This investment round closes amid ongoing concerns from regulators that the financial instruments of Silicon Valley could spread contagion to the fragile banking system.
The bank’s value proposition to startups is access to payment rails and wire systems — the idea being that instead of jumping through financial hurdles, startups can instead focus on customer acquisition and growth. Cross River collects fees between 0.2 percent and 0.5 percent from loans across its entire portfolio. With the new capital, the bank wants to grow its asset base to between $260 and $300 million over the next 36 months.
Gilles Gade, CEO of Cross River, told me that his bank is considered tier-one capital — regulator speak for “well-capitalized.” Gade added that Cross River keeps twice as much capital on hand as is required by regulators. “Regulators expect us to be a lot more than a pass through.”
Cross River also sees itself as having a responsibility to maintain an active role in its companies. The bank takes an on-book financial stake in every loan it originates. Amounting to roughly 10 percent, the stake is enough to show commitment without tipping the scales of risk, Gade explained.
Maintaining such high exposure in a single industry could be seen as brash, but Gade really does believe that fintech is here to stay. He explained that the economy is now dependent on fintech and, like it or not, people have come to expect it.
Scott Tobin, a partner at Battery Ventures, pointed out that the deal creates a lot of synergies. “They already hold the keys to our clientele,” said Tobin, who will be joining the Cross River Bank board of directors.
While this could be construed as a conflict of interest, Tobin believes it is in line with Battery’s history of investing in fintech.
One of the benefits of Cross River Bank being a highly regulated financial entity is that its investors had easy and transparent access to layers of financial diligence materials. Tobin said that Battery’s due diligence process began almost a year ago and Ribbit Capital and Andreessen Horowitz joined shortly after.