A Triangle company trying to fill the void left by a slew of bank takeovers last year is looking for debt deals.
Newly-minted firm Conductor Capital has partnered with Boston technology company Supply Wisdom on a growth debt facility. It’s the first deal for Conductor Capital, a startup firm made up of a team of ex-Signature bankers planning to provide what its website describes as between $2 million and $10 million in “growth oriented debt capital” for technology companies.
The deal — finances of which were not disclosed — could be the first proving opportunity for Conductor amid a changing economy.
The pressure is on for Zack Mansfield, former managing director of Signature’s venture banking group, and Dhruv Patel, former Signature senior vice president, who teamed up on the new company last year. Conductor previously filed papers for a $35 million round.
Patel and Mansfield had worked together at Square 1 in Durham before leaving to help Signature kick off its venture business five years ago. They left Signature last year following its regulatory takeover and subsequent buyout by Customers Bancorp in Pennsylvania.
Mansfield said demand is high for non-dilutive funding, particularly in Conductor's sweet spot, debt deals between $2 million and $6 million. And he doesn't see that demand disappearing even if capital opens up with expectations that the Fed will cut interest rates.
"There's not many entities that want to do the types of deals we're doing," Mansfield said, noting he and Patel have the connections to get the calls.
Many of the investment banks "are friends," he said. And when a debt deal within their portfolio doesn't fit their metrics, they can call in Conductor to potentially provide the capital.
"They want to continue to have a banking relationship with these companies," he said. "It's a win-win."
Venture capital, too, offers referrals that often prioritizing larger deals.
"When there's opportunities that are smaller, they can often refer them to us," Mansfield said.
But as Conductor proves out its business model, change is happening in Washington, D.C., as signs point to rate cuts. For Conductor, which has floating rate loans, it could mean lower borrowing costs for its companies.
It could also loosen the equity markets, potentially meaning more exits, which could fuel other sources of funding competition in the venture space. Exits help pay back limited partners, who can then further invest their dollars in venture capital funds. And that's more sources of capital for startups — but more competition for investors.
Mansfield said he's confident in the model, and that there will be enough good quality deals for Conductor to thrive.
"We don't need to do a thousand deals. We just need to pick the right portfolio for Fund 1," he said. "Our goals are really focused on being really great at executing the strategy we have and prove that we have a model that works. ... If we do that, we'll be able to scale beyond where it is today."
Pat Gouhin, CEO of the Angel Capital Association, isn’t familiar with Conductors Capital, but said companies like it are “filling a void” left by the banks that ran into trouble last year, firms such as Silicon Valley Bank and Signature.
“There’s definitely enough demand out there,” he said. “When [banks] went under, that created a void that really all the entrepreneurs had to shuffle and go get equity raises. ”But there is a drawback for other investors — and that’s the fact that debt vehicles tend to be at the front of the line should a company liquidate.
Gouhin said that’s well understood and doesn’t mean these kinds of debt investments aren’t a needed piece of the puzzle.
Mansfield and Patel are not the only local names involved in the new company. The firm’s website lists a “founders circle” with several well-known executives, including Henry Kaestner, former chairman of Bandwidth (Nasdaq: BAND).