Silicon Valley Bank, the stellar benefits with which it conquered the tech world

Silicon Valley Bank, the stellar benefits with which it conquered the tech world

Silicon Valley Bank

When Vai Gupta, co-founder of a real estate startup, drove into downtown San Francisco from the city's outskirts last year, he borrowed the conference room of a Silicon Valley Bank (SVB) branch to host a quick business meeting. , as he had already done several times in the last ten years. Gupta had also relied on the bank for networking events, financial tutorials, and to get discount codes for business software and services. Other banks offer their customers various benefits, but the package offered by Svb had managed to win the loyalty of Gupta, at least until the financial institution specializing in the technology sector went bankrupt last week.

Now Gupta is among thousands of clients who are wondering if they will ever again find a financial institution that can deliver the unique combination of benefits, insights and speed that SVB offered to tech entrepreneurs. Founded nearly forty years ago by a Stanford University professor who began collaborating with banking industry experts after noticing that students struggled to finance their business ideas, SVB was rolling out red carpets to startup founders long before their companies make profits or raise significant funding.

The startup beacon

Offering loans, assistance, bottles of fine wine and fully-expenses-paid ski holidays to companies too small to be managed by major banks, Svb quickly established itself as the go-to bank for anyone dealing with the startup community in the metropolitan area around the San Francisco Bay Area. Clients who have grown with Svb's help include names like Cisco, Coinbase, and Etsy.

But a wrong bet on interest rates – which Svb predicted would remain low, but which instead have risen sharply since the beginning of 2022 – and ineffective communication at the beginning of the crisis have led bank customers to launch a bank run, fueled by fears about the institution's financial health. US regulators took control of the bank on March 10, and the Federal deposit insurance corporation (Fdic), the agency responsible for the solvency of banking institutions in the country, stepped in to fully guarantee the remaining deposits.

Svb's future remains uncertain and several entrepreneurs tell how the financial institutions that are rushing to fill the void are not up to par with the services and extras offered by the bank. Above all, members of the tech community are wondering what it might mean for them and for startups in general to lose a trusted partner who has helped early stage companies and their founders survive tough times and get mortgages or loans that others wouldn't have given. .

“ They understand our innovation ecosystem and build all their offerings around that,” explains Hemant Taneja, chief executive officer of General Catalyst, a venture capital firm that had accounts at Svb.

In recent days, Taneja's company has joined many others who have signed an appeal aimed at companies , to continue to rely on Svb , which they describe as "one of the safest and most protected banks in the country at the moment ". The bank wrote on its website on March 14 that, under the supervision of US regulators, it is honoring all existing loans and welcoming new customers. Svb forwarded a request for comment from US to the Fdic, which declined. According to a source inside the bank, on March 14, dozens of companies expressed interest in taking out new loans.

The at least temporary disappearance of SVB adds to the current economic uncertainty in the technology sector. Over the past year, rising interest rates have limited startups' access to cheap cash from investors. Loss of access to the loans and connections that SVB used to provide could hasten the collapse of some companies and force others to scale back their ambitions – and potentially even salaries – until consumer and investor confidence in the economy wanes. restored.

Unrivaled Benefits

For his part, Gupta already misses Svb . The entrepreneur moves money internationally at least a couple of times a month for his startup Bonfire Dao, which aims to reduce barriers to buying real estate by leveraging the blockchain technology underpinning cryptocurrencies. Gupta calculates that his new bank, Chase, will charge him $5,000 a year for wire transfers, which SVB provided free of charge.

SVB was offering customers freebies through a dedicated section of its mobile app, long before other banks would start offering similar discounts to startups, says Gupta, who got Amazon Web Services cloud vouchers and free electronic signature services from SVB. The entrepreneur has participated in more than ten events organized by the bank, such as meetings dedicated to the search for co-founders or investors. The bank also provided free lunches and allowed him to use one of its meeting rooms during business trips: "They were very hospitable," Gupta points out, adding that he may now be forced to pay a subscription to coworking company WeWork.
Thanks to Svb, entrepreneur Adam Zbar was able to make free use of a cabin on a pier on Lake Tahoe, in California. As the CEO of meal delivery company Sunbasket, Zbar used the house to host retreats with his management team. The bank also provided a top chef for an evening and exclusive wines from SVB's client cellars: "It was phenomenal," says Zbar. Angeles in Mammoth Mountain, California, says Zach James, co-CEO of ad technology company Zefr. The bank also allowed its customers to drive luxury cars, access backstage at music festivals and meet winemakers in private sessions at Napa Valley wineries (in just one year, SVB hosted 300 wine-related events).

Over time, the bank's rivals started to move. In recent years JPMorgan Chase had announced the hiring of several prominent bankers of Svb. The First Republic Bank was acquiring several of the company's technology clients. But the priorities of these institutes continued to be other sectors.

Law firms, consultancies and recruiting firms are also among the main sponsors of the technology industry, but none of these sectors – and of sure no other bank - has managed to match the generosity of SVB towards companies still very far from being listed on Wall Street, as reported by entrepreneurs and some investors. " They were one of the main supporters of the community – says Paige Craig, who was a client of the bank both as an entrepreneur and venture capitalist –. The void to fill is large ".

Flexibility and elegance

Despite all the advantages, the main attraction of SVB for many companies remained the ease of access to loans. Startups resort to bank loans to diversify their funding and because this method often allows them to secure money without giving up a large number of shares, as happens when they turn to venture capitalists.

In general, according to the entrepreneurs, Svb offered the least rigid conditions and competitive interest rates. In the event of a borrower going bankrupt, SVB had a reputation for handling the situation more elegantly than other lenders.

Roger Smith, CEO and founder of SVB, told the Computer History Museum in 2014 that the bank's flexibility hasn't led it to sacrifice profits. " When the music stops, we want two chairs, not just one – he explained -. But we have been able to help people grow ".

This quality of Svb is confirmed by Zbar. The former Sunbasket boss founded the meal delivery company in 2013 after running out of venture funds raised for another idea. He didn't have the money to repay a bank loan, but his Svb contact appreciated Sunbasket's proposal. Since investors were also in favor of the idea, the bank allowed Zbar to continue operating month-to-month under new conditions as the food business progressed.

An unfillable void

In recent days, entrepreneurs in the tech sector have turned to other institutions to transfer their deposits from Svb. But their experience reminded them of what they valued about the bank. Zefr was unable to find a single bank capable of offering all the services he was looking for, ending up relying on one for loans and another for current accounts. He doesn't expect Zefr's growth to slow down, but says his company "will have to accept worse conditions or take on a few more risks".

Gupta recalls how a decade ago, when he was in Singapore for his previous startup, managed to open an account with Svb online, an option he has no longer found now that he is looking for alternatives to the bank.

The entrepreneur wrote on LinkedIn last week that "many other startups have lost a valued friend, partner, and source of support." Gupta adds that his instinct would lead him to stay with SVB should the bank revive, but that he is no longer sure that would be the more prudent choice from a financial point of view. And that's despite constant help, attractive discounts, and free conference rooms.

This article originally appeared on US.

Powered by Blogger.