There’s a reason Silicon Valley Bank has become a fixture among startups. We understood their needs better than any other bank. Even today, many banks do not have the flexibility and understanding to make banking easy for startups. Without the SVB, many young companies will find it difficult to manage their finances.
In the wake of the current wave of bank failures, a customer of Silicon Valley Bank (SVB), one of the startups I currently work with, recently applied to open an account with a major money center bank. Did. The bank returned a long list of objections and eventually refused to even open a basic bank account. Here’s why: the startup wasn’t 100% US-owned by him, had a foreign-born CEO, and a senior manager who lived outside the US His startup was a rejected major US customer. , has a very promising future.
This headache speaks to the tremendous value SVB has brought to startups, venture capitalists, private equity firms, public tech companies, and the economy at large over the past 40 years.
I first learned about SVB in 1990 when I was at my first start-up, Avid Technology (AVID). I collected very large checks from customers and volunteered to deliver the checks to the bank for cash on the books. startup. I learned from the CFO that SVB doesn’t have an office there, so I mailed the check to the bank. I found it interesting that a bank without branches could still provide the services that a fast-growing company needs. We banked with SVB because they knew companies like ours better than any other bank.
Over the next 30+ years, SVB has evolved with the startup and venture capital industry. It took me some time to understand the business of a startup, and I realized that it evolves and changes as it grows. I remember the CFO demonstrating Avid’s revolutionary digital video editing software to his SVB when we were growing our account. They wanted to understand our technology and products better and be partners in their entrepreneurial journey. Other banks didn’t try to understand our business. Account opening had all sorts of strict financial requirements and they never changed the rules. This is despite Avid being backed by blue-chip investors, his Greylock and Highland Capital.
Most banks will lend to businesses if they have proof of earnings. In contrast, SVB understood that startups don’t always have a complete grasp of the business when they first raise money. Startups often raise funding before they have achieved what the industry term is called “product market fit”. This is about being in a good market with a product that can satisfy your customers. Achieving product-market fit took time and experimentation, and SVB patiently supported startups, including a pre-revenue banking startup.
SVB was a much better partner than a traditional bank as they were experts in understanding the evolution of this startup. The SVB has been more lenient in allowing changes from certain return covenants that are often part of banking relationships. From the beginning, they gave us ideas about investment banking relationships, potential clients and even executives who could join us. It was a full-service bank focused on startups.
SVB was also ahead of its time as a pioneer in branchless remote banking. They have developed many convenient business-to-business internet and mobile banking features for him. Another founder I work with recently mentioned that SVB makes it easy to deposit very large customer checks into their mobile banking app. SVB was also an early adopter of innovations such as DocuSign and other electronic signature technologies, whereas traditional banks required paper documents and “handwritten” signatures. They were also early on in offering startups various debt financing options after the equity funding round. This allowed these startups to expand their cash runway without the founders or employees giving up too much stake.
As the startup market has become more global, more and more promising startups are being established outside the United States, and SVB recognized this trend early on. Founders in Israel, France, Holland, China and other countries know how important and difficult it is to break into the US market. SVB made banking in the US easier for foreign founders.
SVB also relied heavily on growing venture capital investors backing start-ups. By partnering with venture capitalists who back startups with a series of funding rounds, the bank has de-risked its deposits and venture debt. SVB did this and had credit losses comparable to traditional banks, but without the traditional collateral requirements of major banks. This “magic triangle” of startups, VCs, and SVBs formed a symbiotic relationship that has worked brilliantly for 40 years, helping launch tech pioneers like Cisco, Etsy, and Roku.
Over time, other banks focused on lending to the startup market, but none fully matched SVB’s offerings.
Making the SVB unique was not the cause of the failure. The massive influx of deposits from startups during the recent tech bubble has created investment challenges for SVB like any bank. The SVB mismanaged its investments, leading to a bank run, which eventually led to its closure and Chapter 11 filing.
Its demise will hurt the tech ecosystem as it no longer has a focused banking partner who understands the unique needs of startups. Startups are already affected.
