Riggs National Corp.-long regarded as a conservative lender-is taking a gamble on high technology.

The District of Columbia banking company is starting a $100 million venture capital fund that will help finance technology firms. It is funding the venture, Riggs Capital Partners, with proceeds from a $200 million sale of trust-preferred securities.

Securities and Exchange Commission rules prohibit Riggs from discussing the venture until the offering is completed.

But one venture capitalist familiar with Riggs' strategy said the move is wise. The venture not only holds promise of solid returns, said Reid Miles, a partner at Blue Water Capital in McLean, Va., but also lets Riggs get its foot in the door of many local software, telecommunications, and biotech companies.

"Investing in venture capital funds is an ideal way to provide traditional banking services to technology companies," Mr. Miles said.

Among small banking companies, only Silicon Valley Bancshares in Santa Clara, Calif., and Imperial Bancorp in Los Angeles have really made names for themselves in technology financing.

But other lenders, such as Progress Financial Corp. in Blue Bell, Pa., are looking to build reputations as tech lenders-though in less traditional ways.

Instead of making direct loans, $5.5 billion-asset Riggs and Progress are sharing the risk with other financiers by investing in venture funds.

Progress, a unitary thrift holding company with $665 million of assets, manages a $10 million venture fund and is in the midst of raising money for a $35 million fund.

To be called the NewSpring Venture Fund, it is intended to make $1 million to $5 million investments in new companies that have produced revenue but have yet to turn a profit. The fund is to be launched this fall.

"We expect the NewSpring Fund to generate a 25% return per year," said W. Kirk Wycoff, chairman and chief executive officer at Progress. "It's become a successful business for us."

One perk Progress gains from investing in venture funds is warrant income. As payment for taking a risk on money-losing new companies, Progress gets warrants that it can later convert into stock.

For instance, Progress has 68,400 warrants for shares of VerticalNet Inc. of Horsham, Pa., whose stock soared 184% on its first day of trading in February. Progress can legally convert those warrants to shares at exercise prices ranging from 76 cents to $16 per share next month.

Bank financing makes up just a fraction of the overall investment in U.S. technology companies. According to Venture Economics Information Services in Newark, N.J., banks and other financial services firms accounted for just 7% of the more than $12.7 billion invested in telecommunications, biotech, and computer-related industries last year.

Still, their interest in high-tech companies is growing. Last year, direct and indirect investments in this category by financial services firms totaled $888.3 million, according to Venture Economics, up 59% from 1996.

Despite the risks associated with high-tech financing, bankers say it is a business they simply cannot ignore.

Last month, the Commerce Department reported that technology contributed to more than one-third of the nation's total economic output from 1995 to 1998. A University of Texas study concluded that the Internet generated revenues of $301 billion in 1998.

"As a bank, you have to take a serious look to see how you can help those companies," said Geoff Gregory, senior vice president at Webster Financial Corp.

Webster, a $9.3 billion-asset company in Waterbury, Conn., has yet to take the plunge into tech financing. But it does offer cash management and other services to emerging tech companies through the Connecticut Technology Council, a networking group.

Of course, some banks see no reason to wait. Los Angeles-based City National Bank made a commitment to the business two years ago and now makes direct loans to a wide range of new companies.

The technology division now ranks as one of the fastest-growing units at the $6.3 billion-asset bank, said Robert H. Brant, executive vice president.

"We realized that 30% to 40% of the middle-market business in Southern California was related to technology," said Mr. Brant. "We couldn't forgo that large portion of the market."

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