Venturing: Wachovia, Centura, Norwest, Harris

Four large banks have recently formed venture capital units.

Over the past month Wachovia Corp., Centura Banks Inc., Norwest Corp., and Bank of Montreal's Harris Bankcorp have formed small-business investment companies, which are licensed and regulated by the Small Business Administration.

Only eighty-three of the 290 small-business investment companies are affiliated with banks. But banks provide 69% of the $4.7 billion in private capital invested through such firms.

Bank investment companies naturally want to make a profit on their equity or debt investments, but bankers also view them as a way to establish relationships with growing companies.

"The companies are in the formative stages and are raising equity capital and generally aren't in the position to borrow," said John Whaley, partner in Norwest Venture Capital.

The Norwest unit will make equity investments in high-tech, medical, and telecommunications companies and expects annual returns greater than 30%, Mr. Whaley said.

Wachovia views its small-business investment company as a way to reinforce relationships with existing clients, said Matthew Sullivan, senior vice president for corporate finance.

"Our goal is to provide the primary financial relationship for our clients and you need to have a full spectrum of products to do that," Mr. Sullivan said.

Centura Capital has made three investments ranging from $700,000 to $2.5 million of subordinated debt coupled with warrants in growing businesses. The unit does not intend to make equity investments.

"We made a decided commitment to provide all Wall Street-style financial services to the midsize and small businesses in North Carolina," said Bob Anders, Centura Capital president.

Centura plans to invest in manufacturing, distribution, and computer services companies and expects an annual rate of return between 25% and 30%.

The venture capital subsidiary of the Rocky Mount, N.C.-based bank will generate income from its application fees, interest charges, and profits on the use of its warrants.

Federal law prohibits banks from owning more than 5% of the voting stock of another business, but small-business investment companies can own as much as 49%.

Banks can invest no more than 5% of their capital in the venture capital units, but can leverage SBA-guaranteed funds for their investments.

Bank-affiliated small-business investment companies have leveraged $45 million in SBA funds, or about 3% of that leveraged by privately managed units.

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