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I'm really curious why banks like this are popular in the first place. I get why startups would want to lend from them, but what is the advantage of parking cas

I'm really curious why banks like this are popular in the first place. I get why startups would want to lend from them, but what is the advantage of parking cash in a "startup-focused" bank? The rest of the business is exciting/risky enough, wouldn't you want your banking to be as boring as possible?

paxys 4y ago
People care about convenience of locations, ATMs, online experience, customer service, savings rate, (lack of) fees, rewards. The bank's underlying risk profile is irrelevant for the vast majority of customers. If you have <$250K in your account the money is safe either way.
- throwaway1777 4y ago
  Svb has relatively few normal customers. It’s almost all startups and vcs
helsontaveras18 4y ago
Banks don't understand startups. Startups have no history and just appear out of thin air with millions of dollars in their bank account. And then they proceed to burn tens if not hundreds of thousands of dollars month on month until they die, or get flooded with more millions. That's some weird stuff!! A bank that understands this, knows it's not fraudulent, and makes it easy to withdraw, deposit, get credit cards, give loans/venture debt, has a competitive advantage in this niche but highly lucrative sector—given they can operate with the right risk controls.
- jeron 4y ago
  SVB has been a great bank for startups, they're no rookie at this stuff considering they've been around for 4 decades. However it seems like their investor communications and PR has been lacking
- dgacmu 4y ago
  +this. We had BoA offer us a $10k credit card limit when we were discussing keeping over $1m on deposit at all times, simply because we're still running a loss. (And they couldn't figure out how to implement two party control for large transfers). Was a headache. We stayed with SVB.
- tootie 4y ago
  I feel like this is unlikely. Startups didn't spring into existence in 2005. Every business was a startup at one point. Even venture capital isn't new. I'd wager every suit and tie wall st old guard firm knows how to handle startups just fine. SVB just had the right branding for young entrepreneurs who assumed JP Morgan wouldn't talk to them.
  - jen20 4y ago
    They might know how to, but they choose not to.
    - tootie 4y ago
      In that case it would just SVB has a much higher risk tolerance and it seems that may have bitten them in the ass.
      - jen20 4y ago
        Indeed: this may portend a very rough few years for small businesses of any type and location being able to access the kind of banking services they have been able to until now.
  - borski 4y ago
    Having worked with both major banks (BoA, Chase) and startup focused banks (SVB, First Republic, Square1) - you’re incorrect. BoA and Chase are great for personal capital, but for startups they are horrendous. Huge pains to convince them you’re not a drug dealer and aren’t going to die tomorrow. SVB, FRB, etc., understand startups and make it possible to… bank with them.
- chii 4y ago
  > knows it's not fraudulent so a fraudster could easily exploit this bank then?
boringg 4y ago
Gives you access to the upside of the start up at a lower risk cost compared to VC. I assume you are talking about people who are supplying the capital for the bank.
necubi 4y ago
Well, just as an example SVB gave my startup a bank account and a no personal recourse credit card days after we'd formed the corporation. No way you'd get that from BofA. They understand the startup ecosystem in a way that big banks don't. Now there's some competition from startup-focused banks like Brex and Mercury, but a five years ago SVB was one of the only games in town.
- ericpauley 4y ago
  I totally get why you’d borrow from them, and the card sounds nice, but do you want to be depositing your money with businesses that offer no personal recourse credit cards to brand new businesses?
  - helsontaveras18 4y ago
    What’s wrong with that? Credit cards for businesses can be very low risk with the right KYC and underwriting controls. Consider that startups are most often sitting on mountains of cash. Also, having founders personally guarantee a credit card by putting up a house as collateral is not ideal for anyone.
- object-a 4y ago
  FWIW, Mercury and Brex are not banks. Mercury provides services and a frontend, but their banking services are provided by Choice Financial and Evolve. Brex is also not bank. The Brex business account is an FDIC Sweep account, which constantly moves your balances across multiple banks to keep you within the FDIC limits.
- twelve40 4y ago
  I got a BofA checking account, credits cards and a business car loan in the first month after setting up a brand new corp with 0 assets. It's almost kind of funny how it worked exactly as you described, at BofA. P.S. which makes me wonder how much of SVB friendliness was just smart marketing. If you look up and down this thread, most of the SVB "explanations" here are strictly circular: "they are good for startups because they are good for startups", with little to none useful info.
ttobbaybbob 4y ago
they provide services/incentivies specifically catered to startups and their needs (eg free checking, aws credits, payment processing APIs/etc) and not unlike aws/stripe/etc they want to be the bank for small companies that grow into huge companies. startups are a good segment to target (eg like vc) because they might also turn into a large company with much more cash and more banking needs
kentonv 4y ago
To add to the other comments, SVB also courts startup founders for their private banking arm, and there, too, the benefit is that they actually understand startup founders. Example: After our startup went up in flames in 2017 my wife and I (co-founders) got "regular jobs" with nice salaries. Some time later, we tried to refinance our mortgage with Chase. The banker at Chase was very happy to serve us right up until the point where he asked if we had more than 20% ownership stake in any company. I said, well, yes, technically we own 80% of our defunct startup. He then said he had to look at the startup's tax returns for the last two years. I was like... ok, that's weird, but sure. He then informed us that we did not quality for a loan because he had to consider our company's income along with our own, and our company had lost half a million dollars in its last year of operation, therefore he considered us to have lost half a million dollars. I was like... "Do you even know what a C corp is?" We ended up switching to SVB, which had no problem refinancing our mortgage. (Fortunately our balance in that account today is within FDIC-insured limits...)
- kragen 4y ago
  interesting, i didn't realize sandstorm.io had gone up in flames; that explains why i don't hear much about it any more
- trogdor 4y ago
  I understand that a C corp is its own legal entity, but from a risk management perspective, the bank’s approach makes perfect sense.
  - wpietri 4y ago
    Which bank? There are two different banks here with very different risk management approaches.
    - piva00 4y ago
      One is still standing, the other seems to be insolvent.

paxys 4y ago

People care about convenience of locations, ATMs, online experience, customer service, savings rate, (lack of) fees, rewards. The bank's underlying risk profile is irrelevant for the vast majority of customers. If you have <$250K in your account the money is safe either way.

throwaway1777 4y ago
Svb has relatively few normal customers. It’s almost all startups and vcs

helsontaveras18 4y ago

Banks don't understand startups. Startups have no history and just appear out of thin air with millions of dollars in their bank account. And then they proceed to burn tens if not hundreds of thousands of dollars month on month until they die, or get flooded with more millions. That's some weird stuff!! A bank that understands this, knows it's not fraudulent, and makes it easy to withdraw, deposit, get credit cards, give loans/venture debt, has a competitive advantage in this niche but highly lucrative sector—given they can operate with the right risk controls.

jeron 4y ago
SVB has been a great bank for startups, they're no rookie at this stuff considering they've been around for 4 decades. However it seems like their investor communications and PR has been lacking
dgacmu 4y ago
+this. We had BoA offer us a $10k credit card limit when we were discussing keeping over $1m on deposit at all times, simply because we're still running a loss. (And they couldn't figure out how to implement two party control for large transfers). Was a headache. We stayed with SVB.
tootie 4y ago
I feel like this is unlikely. Startups didn't spring into existence in 2005. Every business was a startup at one point. Even venture capital isn't new. I'd wager every suit and tie wall st old guard firm knows how to handle startups just fine. SVB just had the right branding for young entrepreneurs who assumed JP Morgan wouldn't talk to them.
- jen20 4y ago
  They might know how to, but they choose not to.
  - tootie 4y ago
    In that case it would just SVB has a much higher risk tolerance and it seems that may have bitten them in the ass.
    - jen20 4y ago
      Indeed: this may portend a very rough few years for small businesses of any type and location being able to access the kind of banking services they have been able to until now.
- borski 4y ago
  Having worked with both major banks (BoA, Chase) and startup focused banks (SVB, First Republic, Square1) - you’re incorrect. BoA and Chase are great for personal capital, but for startups they are horrendous. Huge pains to convince them you’re not a drug dealer and aren’t going to die tomorrow. SVB, FRB, etc., understand startups and make it possible to… bank with them.
chii 4y ago
> knows it's not fraudulent so a fraudster could easily exploit this bank then?

boringg 4y ago

Gives you access to the upside of the start up at a lower risk cost compared to VC. I assume you are talking about people who are supplying the capital for the bank.

necubi 4y ago

Well, just as an example SVB gave my startup a bank account and a no personal recourse credit card days after we'd formed the corporation. No way you'd get that from BofA. They understand the startup ecosystem in a way that big banks don't. Now there's some competition from startup-focused banks like Brex and Mercury, but a five years ago SVB was one of the only games in town.

ericpauley 4y ago
I totally get why you’d borrow from them, and the card sounds nice, but do you want to be depositing your money with businesses that offer no personal recourse credit cards to brand new businesses?
- helsontaveras18 4y ago
  What’s wrong with that? Credit cards for businesses can be very low risk with the right KYC and underwriting controls. Consider that startups are most often sitting on mountains of cash. Also, having founders personally guarantee a credit card by putting up a house as collateral is not ideal for anyone.
object-a 4y ago
FWIW, Mercury and Brex are not banks. Mercury provides services and a frontend, but their banking services are provided by Choice Financial and Evolve. Brex is also not bank. The Brex business account is an FDIC Sweep account, which constantly moves your balances across multiple banks to keep you within the FDIC limits.
twelve40 4y ago
I got a BofA checking account, credits cards and a business car loan in the first month after setting up a brand new corp with 0 assets. It's almost kind of funny how it worked exactly as you described, at BofA. P.S. which makes me wonder how much of SVB friendliness was just smart marketing. If you look up and down this thread, most of the SVB "explanations" here are strictly circular: "they are good for startups because they are good for startups", with little to none useful info.

ttobbaybbob 4y ago

they provide services/incentivies specifically catered to startups and their needs (eg free checking, aws credits, payment processing APIs/etc) and not unlike aws/stripe/etc they want to be the bank for small companies that grow into huge companies. startups are a good segment to target (eg like vc) because they might also turn into a large company with much more cash and more banking needs

kentonv 4y ago

To add to the other comments, SVB also courts startup founders for their private banking arm, and there, too, the benefit is that they actually understand startup founders. Example: After our startup went up in flames in 2017 my wife and I (co-founders) got "regular jobs" with nice salaries. Some time later, we tried to refinance our mortgage with Chase. The banker at Chase was very happy to serve us right up until the point where he asked if we had more than 20% ownership stake in any company. I said, well, yes, technically we own 80% of our defunct startup. He then said he had to look at the startup's tax returns for the last two years. I was like... ok, that's weird, but sure. He then informed us that we did not quality for a loan because he had to consider our company's income along with our own, and our company had lost half a million dollars in its last year of operation, therefore he considered us to have lost half a million dollars. I was like... "Do you even know what a C corp is?" We ended up switching to SVB, which had no problem refinancing our mortgage. (Fortunately our balance in that account today is within FDIC-insured limits...)

kragen 4y ago
interesting, i didn't realize sandstorm.io had gone up in flames; that explains why i don't hear much about it any more
trogdor 4y ago
I understand that a C corp is its own legal entity, but from a risk management perspective, the bank’s approach makes perfect sense.
- wpietri 4y ago
  Which bank? There are two different banks here with very different risk management approaches.
  - piva00 4y ago
    One is still standing, the other seems to be insolvent.