4 ms·
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 start
by 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 agointeresting, 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 agoI 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 agoWhich bank? There are two different banks here with very different risk management approaches.
- piva00 4y agoOne is still standing, the other seems to be insolvent.
- subroutine 4y agoIndeed, SVB is still standing while JP Morgan Chase got a $25 billion dollar bailout in 2008. https://money.cnn.com/news/specials/storysupplement/bankbailout/ https://money.cnn.com/news/specials/storysupplement/bankbail...
- wpietri 4y agoAnd they are also so good at due diligence that they got scammed for $175 million: https://www.forbes.com/sites/alexandralevine/2023/01/11/jp-morgan-fake-customers-frank-charlie-javice/?sh=2822df2814d4 https://www.forbes.com/sites/alexandralevine/2023/01/11/jp-m...
- subroutine 4y agoHow? I'm no banker, but to me their financial picture reads: married couple, both currently have nice salary working at companies X and Y, together have proven ability to raise millions in capital. I would say yes please take our refi loan, and do come back if you need anything else.
- trogdor 4y agoWhy would a proven ability to raise millions in business capital (and, apparently, to subsequently hemorrhage it) make someone a better credit risk for their home mortgage? Their financial history includes borrowing lots of money, taking a big risk, and losing a lot of that money. Not necessarily bad, but it’s reality. Just because that activity happened under a different legal entity doesn’t make it irrelevant. The mortgage applicants own nearly all of the company that is losing tons of cash. It is an important part of their financial history.
- kentonv 4y agoRaising capital and then burning it all is what most startups do. Investors put in money knowing this was the most likely outcome. The whole point of the C corp is to keep the investor money isolated from personal money. I'm disappointed that we failed but I think it shouldn't affect our personal credit one way or the other.
- nostrademons 4y agoI was in a similar situation when my startup went up in flames and I went to get a mortgage, but I just showed the bank copies of the dissolution paperwork and they accepted that without any further questions. If a startup really is defunct it usually makes sense to formally dissolve it - otherwise you're on the hook for franchise taxes, registered agent fees, etc, and those can add up after a few years.
- kentonv 4y agoThe company still existed at the time because we were still operating our paid service in maintenance mode for a while since we didn't want to cut people off. (The cash flow involved was trivial.) Funnily, we ended up not being able to dissolve for 5 years because some dude decided to sue us (though this actually happened after Chase turned down the refi). I'm not going to get into the details except to say eventually his lawyer withdrew, he was self-representing, and then he didn't show up for court appearances, and so it was dismissed. 5 years later. This also did not bother SVB, when they looked at the details. Anyway we finally dissolved last year.