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Banking is in George Cook’s DNA.

Cook’s family has run the $1.3 billion-asset Somerset Trust in Pennsylvania since its founding 130 years ago. His father, G. Henry Cook, has been the bank’s chairman and CEO since 1992.

But the younger Cook has no plans to join Somerset, at least not anytime soon. Instead, he co-founded Honeycomb Credit, a crowdfunding firm in Pittsburgh that matches early-stage businesses with investors in their communities.

Since its recent graduation from a Pittsburgh accelerator program, Honeycomb has opened offices in Philadelphia and Cleveland, with another location planned in Detroit. The firm, which is in the middle of raising $1 million in seed capital, has managed several dozen crowdfunding campaigns, with 15 more in progress.

Growing up in a banking family, “I did everything you could possibly imagine at the bank, from working the teller line to working on strategic projects,” Cook said.

“The one thing that really stuck with me was commercial lending, in particular the relationship-banking model community banks relied on,” he added. “They didn’t just look at the numbers. There was a story behind every commercial loan.”

Cook’s decision to form a nonbank platform that could bump up against traditional lenders highlights the banking industry’s growing challenge of recruiting and retaining younger workers.

Small banks need to attract talented young professionals like Cook to address a looming “innovation imperative," said Robert Voth, who leads the commercial and consumer financial services practice at Russell Reynolds Associates. Voth says customers today are expecting positive experiences centered around cutting-edge technology.

“If customers are not supported by front-foot innovation, they’re going to look elsewhere,” Voth said.

Cook, for his part, said it would be challenging to build a platform like Honeycomb at a community bank. Because Honeycomb structures its deals like "mini bond offerings," it had to be licensed by the Securities and Exchange Commission and the Financial Industry Regulatory Authority, a prospect that may be unappealing to small banks that already deal with plenty of regulatory oversight.

"A lot of banks are also running on old legacy systems, so it's difficult for a fintech that needs flexibility out of the gate to plug into some of those," Cook added.

Cook saw a need to provide capital to young companies that are too big for microloans yet too small for conventional credit. A decline in the number of community banks has reduced available credit for those businesses. An increased reliance on algorithms for credit decisions convinced Cook that an opportunity existed to revisit lending based on a company's underlying narrative.

“We see that doughnut hole emerging for businesses that are one to five years old,” Cook said. “They have a growth opportunity in front of them, but they just don’t have a good place to turn. They’re kind of caught in between two different types of capital.”

While online decisions have worked relatively well for consumer lending, it hasn’t been as effective with small businesses, Cook said.

“By voting with their wallets, community members who are actually investing in these loans ... can do a lot of that qualitative analysis that used to be done at the community banking level,” he said.

Cook and co-founder Ken Martin developed their concept for Honeycomb while pursuing MBAs at Dartmouth College. Martin had invested in several capital-starved small businesses.

Most of Honeycomb’s campaigns, which top out at $50,000, are structured as three- to five-year loans. The company has facilitated nearly $1 million in loans.

The platform's “lenders” largely consist of a company's customers and people who feel strongly enough about a model to chip in at least $100. Three-fourths of the referrals come from past customers and community partners.

Honeycomb generates revenue from user fees and a “success fee” of 6% or 8% that only kicks in when a client meets its capital goal.

“That makes sure our incentives are aligned and we’re cheering on the businesses and offering them the resources they need to run a successful crowdfunding campaign,” Cook said.

Honeycomb’s credit gap thesis is spot on, said William Phelan, senior vice president and general manager at PayNet, an Equifax unit that provides small- business credit ratings. A focus on local investors “is something that’s sorely needed.”

Phelan, however, isn’t convinced that the model is scalable.

“It’s a noble effort, but it’s difficult to get [people] to put that kind of money together in a short period,” he said.

Entrepreneurs often underestimate the amount of effort needed to generate a successful crowdfunding campaign, said Janielle Denier, CEO of RainFactory, a digital marketing agency in San Francisco.

"One of the largest fallacies in crowdfunding is that you launch a page and you get money," said Denier, who has worked on more than 150 campaigns. "It's not that easy."

Still, Denier said she is impressed by Honeycomb’s local spin.

While he declined to join Somerset, Cook’s venture has brought him and his father closer together. The elder Cook was one of Honeycomb’s first investors.

“He’s been a real cheerleader for us,” Cook said of his father. “He’s offered a lot of guidance, as well. Having someone with such a deep, robust experience in the community banking industry in our corner … has been a really great asset.”

Cook's father, who joined Somerset in 1968, would like his son to someday work at the bank. That said, he's excited by Honeycomb's progress, adding that he and his wife frequently discuss campaigns over dinner.

“Honeycomb has taken a piece of what I’ve been doing for 50 years,” the elder Cook said. “My hope is that my son would have joined me in the family business. There’s no doubt he would have done a great job, but I’m very proud of what he's doing."

Ultimately, the younger Cook would like to see Honeycomb become a partner for community banks. He'd like to see banks refer their early-stage clients that aren't ready for conventional financing. Cook also hopes Honeycomb can participate in loans.

"We’ve got a couple of banks anxious to get started with us," he said. "We’re figuring out exactly what that’s going to look like. I think we’ve got a couple exciting early leads that are going to evolve into something neat."

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