Royal Bank of Canada has rebuilt its innovation banking unit to help technology companies scale up, aiming to use its size and reach to reassert a prominent position against Canadian and American rivals.
The bank is officially launching RBCx this week, a new platform led by Bay Street venture capital veteran Sid Paquette that will include a broader set of products to provide capital to fast-growing tech companies.
To stand out in an increasingly competitive market, RBC intends to wrap its core products with an array of perks. Those will include discounts from partners in fields from cloud computing to accounting, tailored personal banking and wealth management services, as well as partnership and sponsorship opportunities.
RBC is not new to technology banking: It was one of the most prolific Canadian financiers of the domestic sector during the dot-com boom. But it gave up ground to rivals in the mid-2000s. First, U.S. competitors Silicon Valley Bank and Comerica Inc. pushed into Canada, claiming a larger share of the market. More recently, Canadian Imperial Bank of Commerce , National Bank of Canada and Bank of Montreal have added resources to tap into an explosion of activity across the domestic sector.
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CIBC bought Wellington Financial in 2018 as the cornerstone of a new innovation banking unit, setting off a flurry of competition that has seen other banks poach executives and make greater efforts to win business from tech companies, some at RBC’s expense.
To mount a response, RBC has drawn from the ranks of venture capital and entrepreneurship to refresh the team leading its tech banking unit. RBCx’s approach mirrors the bank’s broader strategy to use its scale and reach to draw clients into deeper relationships by offering them more than basic banking products.
“So much more is required other than just capital,” Mr. Paquette said in an interview. “Equally as important is non-capital products and services that are going to help these technology and innovation companies scale their businesses.”
Even at launch, RBCx is a work in progress. “There are products that we need to bring to market to be directly competitive, we’re lacking in a couple,” Mr. Paquette said. The bank is developing a venture debt product as part of a suite of new offerings for clients, and working on a strategy to invest directly in companies.
The unit is also taking a different approach to venture capital: Rather than passively wait for VC funds to approach the bank for backing, RBCx has decided to “flip the script” and proactively pursue top-performers such as Vancouver-based Version One Ventures to take the bank’s money, Mr. Paquette said. RBCx has also backed Lumira Ventures of Toronto, making the bank one of the few Canadian institutional investors outside Quebec to commit venture funding to the life sciences sector.
And RBCx has built what it calls a “marketplace” of offers such as discounted pricing from top-tier companies in marketing, consulting, recruiting, law and other areas specifically for clients “with no kickback” for RBC, said Nicole Kelly, RBCx director of platform engagement. Aside from earning goodwill from clients, “we don’t take any benefit from that,” she said.
RBC hired Mr. Paquette in March, 2020, as Canada was about to plunge into pandemic lockdowns. Formerly a managing director with the venture capital arm of Ontario Municipal Employees Retirement System, he is one of Canada’s best-known VC investors, but does not have a typical banker’s background.
“He brings to RBC a perspective of knowing what’s missing in the tech ecosystem versus perhaps another bank that just wants to work to get more share of tech companies,” said Michael Serbinis, founder and CEO of health care technology company League Inc., where Mr. Paquette is a board member.
Mr. Paquette, who reports to Greg Grice, RBC’s executive vice-president of business financial services, now has a team of 85 people – two thirds of them drawn from the bank’s knowledge-based industries group, and the rest hired externally or from other parts of the bank.
Notable outside hires include managing director Tony Barkett and director Tyler Kirk, both from Silicon Valley Bank; and Ms. Kelly and director of venture capital Anthony Mouchantaf, both of whom followed Mr. Paquette from OMERS Ventures. By year-end Mr. Paquette expects to have more than 100 staff.
“It’s really kind of a mix between your traditional commercial banking team that specializes in tech all the way through to VCs who have never been in a bank previously,” Mr. Paquette said.
Blending the spirit of entrepreneurial investing with the risk management restrictions and capital rules of traditional bank lending is the secret sauce of tech banking. But it is also what can cause big banks to pull back from the sector when it hits a rough patch, as many did after the dot-com crash. RBC intends to recruit clients ranging from “two girls in a garage” to tech behemoths, Mr. Paquette said, which often don’t fit the typical profile of a bank’s commercial borrowers.
“The key with Sid is his adaptability,” said John Ruffolo, who worked closely with Mr. Paquette at OMERS Ventures and said he has “an outstanding nose” for tech investing.
RBCx also needs to co-exist with RBC Ventures, a startup accelerator the bank launched in 2018 to reach prospective clients well before they need banking products. Mr. Paquette said the two units have “a very close-knit relationship.”
With Canada’s tech sector flourishing, financing rounds getting larger and billion-dollar valuations becoming more common, Mr. Paquette is confident that RBC’s current push into technology banking will endure even as the bank’s executives change and cycles turn. But he also said RBCx must continue to evolve to keep pace with the sector’s competitive dynamics.
“This is not a set-and-forget strategy. This is perpetual motion,” he said. “It’s going to take a little bit of time. It’s not going to take nearly as much time as you would expect.”
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