[db1234]

Sorry for a dumb question:

Apparently lots of VCs and startups use SVB as their bank. Could someone explain why would startups not choose relatively safer big banks like BoA or Chase? What are the advantages of using SVB as the primary financial institution?

[frankchn]

Venture-backed startups are weird in terms of cashflow compared to traditional businesses.

They appear out of thin air with no history and millions of dollars. They then constantly burn money in the tens to hundreds of thousands of dollars a month until they disappear or get injected with millions more dollars. Often, traditional banks don't know how to deal with these entities and it sets off tons of alarms in their fraud and risk management departments.

SVB and related departments know the business and financial models of startups a lot better and are more willing to help.

[twelve40]

i really wonder if that was a problem. My last startup banked with Wells Fargo for a while all the way from pre-seed to A, and it seemed to be fine. Anyway, my number 1 ask from any bank is not to fail, before anything else, and that didn't really work out great here. If SVB was a top-5 bank it probably would have been bailed out by the govt. Not great, but probably safer for the customers.

[bloodyplonker22]

This makes complete sense, however, why would big banks not want to compete against SVB by establishing a smaller division that handles startups? Obviously, the market is small compared to their usual markets, but there is still a lot of good money to be made.

[eastbound]

> why would big banks not want to compete against SVB by establishing a smaller division that handles startups?

Because such startups tend to, when they can’t raise funds easily (=nowadays), withdraw all their cash deposits at the same time (=what’s happening at SVB), which puts it in bankrupt. So, small market, but so much variance in deposits that it’s risky.

[icelancer]

Bank of America couldn't care less about our XX million/year revenues. Literally wouldn't take even basic requests for services. We moved to Keybank who has a much better rep with small businesses, and service (and pricing) has been orders of magnitude better.

I'm assuming a similar thing was going on with SVB vs. other large banks.

[frankchn]

If the deposits are going on the parent bank's balance sheet, it would be subject to the same controls.

[bpodgursky]

Big banks do not understand the cashflow situation of startups. They flag standard fundraising as fraud, drug money, or money laundering (or simply won't open an account in the first place).

[yeahsure22]

They understand it perfectly well, it really isn’t that complex. You are repeating SVB marketing. Bank of America works with thousands of start ups and I’m sure all the other large banks do as well.

[rickreynoldssf]

I have to say, Bank of America was a great bank for my startup. We wouldn't have gotten a bridge loan with them or anything like that but for operating cash management there was never an issue.

[justin66]

> Big banks do not understand the cashflow situation of startups. They flag standard fundraising as fraud, drug money, or money laundering (or simply won't open an account in the first place).

It's not like they blacklist you the moment your attempt to open an account raises an eyebrow. Show up to BofA or Chase with a copy of your contract with your VC, in addition to their check, and it would be odd for them to refuse you an account.

[mbesto]

More importantly, they know how to offer credit to them.

[twelve40]

do a lot of VC-backed startups rely on credit?

[mbesto]

Uhhh yes. Most commercially viable businesses at scale rely in credit. If you're making serious money (call it $10M+ in revenue), you very likely have some credit facility with your bank. Whether you use that credit or not, is another thing.

[icelancer]

Convertible debt instruments have become significantly more popular over the last few years.

[phendrenad2]

I wonder if bigger banks don't want exposure to the kind of disaster we're seeing play out at SVB. Maybe SVB is (was) filling a dangerous niche.

[af0daert]

I'd expect that in many cases they are forced to as part of the venture funding offered by SVB. F.e. Secure a $10M venture note (in connection with Series A) but use SVB exclusively for banking.