Fifth Third to Invest in Startups Through Venture Arm

Fifth Third Bancorp Inc. has established a small venture-capital fund to invest in emerging companies that typically do not qualify for bank loans.

The Cincinnati Enquirer reported Sunday that the $115 billion-asset FifthThird intends to invest between $6 million and $8 million in six growing companies in cities where the company operates. Its first investment of roughly $1 million was made to a Blue Ash, Ohio, company called ThinkVine, which develops marketing-optimization software.

Commercial banks are permitted to invest in early-stage companies through venture-capital or merchant-banking arms, though it is not common practice. A provision in Gramm-Leach-Bliley Act of 1999 prohibits banks from having direct managerial control over companies in which they invest and requires them to divest their stakes within 10 years.

A provision in the Dodd-Frank Act passed in 2010 restricts banks' investments in hedge funds and private-equity funds, though it is unclear to what extent that could affect direct venture-capital investments, if at all. The provision, known as the Volcker Rule because its champion is former Federal Reserve Chairman Paul Volcker, provides an exemption "for investments designed to promote the public welfare."

Fifth Third is working with a Cincinnati-area consulting firm, West Capital Advisors, to help it identify potential investments in its markets. The bank has operations in 12 states throughout the Midwest and Southeast.