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> > Startups already had a difficult time with traditional banking I have seen this statement a half-dozen times in the last 3 days. Can somebody explain in d

> > Startups already had a difficult time with traditional banking I have seen this statement a half-dozen times in the last 3 days. Can somebody explain in detail what are these hard times that a startup faces at Wells Fargo, BoA, JPMChase etc? KYC? If Silicon Valley Bank was skipping that then they were against the law Wires being signaled as suspicious? I doubt it, maybe the startup is new but everybody knows who the Founder's Fund is... or Blackstone or CVC. When they send the big equity raise checks banks look at the recipient but also at the sender.

kelnos 4y ago
KYC is a big part of it, yes. SVB wasn't skipping it; the Wells/BoA/Chase-type banks just do not want to do the additional KYC work for completely unknown players, which many startup founders are. It's not just that; certainly if you're going to open a corner convenience store, you probably won't have a lot of trouble getting a business bank account with BoA. But unlike a more traditional small business, tech startups often come with a massive amount of money that they immediately want to put in the bank, which raises flags... which brings me to: When a bank offers an account to a business, they take on anti-money-laundering and terrorist-funding risk. (That is, if one of their accounts is used for money laundering or funding terrorist activities, the bank is exposed legally to that.) That risk is higher for an unknown small company than a more known quantity. SVB specifically said "we're prepared to take on that risk"; the big banks... not so much. SVB also has built extensive relationships with a bunch of VCs, and will generally accept one of those VC's vouching for a new small company as a signal in favor of it being legitimate. The BoA's of the world don't do that sort of thing. (Source: a former colleague in the fintech space explained this to me.)
- JumpinJack_Cash 4y ago
  > > tech startups often come with a massive amount of money that they immediately want to put in the bank But this is not true, the startup is nothing but an empty box with just a handful of dollars in the account in the very beginning. They are not that different compared with a gas station or a mom&pop shop you mentioned. That is until it gets the first VC investment. Although there are millions of startups, there are only about 2000 VC funds in the US, for sure the banks look at the sender and even if the check is in the millions they'd know it's legit because of the sender which is known and famous , and it's also known to make wire transactions in the millions to finalize their equity investment
  - kelnos 4y ago
    Sure, that all sounds logical, but... it's not actually how it works in practice. ::shrug::
lxgr 4y ago
KYC is not a completely standardized process. There are ways to go above and beyond the standard SSN/database-based approach that can mean the difference between a (compliant!) approval and a "sorry, but our identity provider says you do not exist”. These are very likely more costly, both in implementation and day to day operation, so banks generally only do that if they are interested in that clientele. The same goes for fraud prevention (“Sorry, we only accept customers with a Verizon/AT&T/T-Mobile postpaid plan, and if you ever dare to initiate a transfer from a foreign IP while traveling we will immediately close all of your accounts”).

kelnos 4y ago

KYC is a big part of it, yes. SVB wasn't skipping it; the Wells/BoA/Chase-type banks just do not want to do the additional KYC work for completely unknown players, which many startup founders are. It's not just that; certainly if you're going to open a corner convenience store, you probably won't have a lot of trouble getting a business bank account with BoA. But unlike a more traditional small business, tech startups often come with a massive amount of money that they immediately want to put in the bank, which raises flags... which brings me to: When a bank offers an account to a business, they take on anti-money-laundering and terrorist-funding risk. (That is, if one of their accounts is used for money laundering or funding terrorist activities, the bank is exposed legally to that.) That risk is higher for an unknown small company than a more known quantity. SVB specifically said "we're prepared to take on that risk"; the big banks... not so much. SVB also has built extensive relationships with a bunch of VCs, and will generally accept one of those VC's vouching for a new small company as a signal in favor of it being legitimate. The BoA's of the world don't do that sort of thing. (Source: a former colleague in the fintech space explained this to me.)

JumpinJack_Cash 4y ago
> > tech startups often come with a massive amount of money that they immediately want to put in the bank But this is not true, the startup is nothing but an empty box with just a handful of dollars in the account in the very beginning. They are not that different compared with a gas station or a mom&pop shop you mentioned. That is until it gets the first VC investment. Although there are millions of startups, there are only about 2000 VC funds in the US, for sure the banks look at the sender and even if the check is in the millions they'd know it's legit because of the sender which is known and famous , and it's also known to make wire transactions in the millions to finalize their equity investment
- kelnos 4y ago
  Sure, that all sounds logical, but... it's not actually how it works in practice. ::shrug::

lxgr 4y ago

KYC is not a completely standardized process. There are ways to go above and beyond the standard SSN/database-based approach that can mean the difference between a (compliant!) approval and a "sorry, but our identity provider says you do not exist”. These are very likely more costly, both in implementation and day to day operation, so banks generally only do that if they are interested in that clientele. The same goes for fraud prevention (“Sorry, we only accept customers with a Verizon/AT&T/T-Mobile postpaid plan, and if you ever dare to initiate a transfer from a foreign IP while traveling we will immediately close all of your accounts”).