Mar 18, 2023 - Economy

Navigating SVB's new era

Illustration of two piggy banks facing in opposite directions overlaid on top of a dollar bill and a rectangle.

Illustration: Aïda Amer/Axios

Startups breathed a sigh of relief Sunday night when the Federal Reserve announced it would backstop Silicon Valley Bank deposits. Yet amid anxiety about the banking sector and the future of venture capital funding, this past week has been surprisingly busy.

The big picture: Among startup-land denizens and venture capitalists who were SVB clients, there hasn't been a uniform approach about what to do since the government takeover.

Why it matters: SVB’s temporary successor, Silicon Valley Bridge Bank — helmed by CEO Tim Mayopoulos — has been on the charm offensive this week, sending emails to customers and holding video calls to answer questions.

  • "[P]lease keep a portion of your deposits and operating business at SVB as part of your diversification strategy. Bringing any portion of your deposits back to Silicon Valley Bridge Bank is a vote for us to succeed," the bank said in an email to customers seen by Axios.

State of play: Startups and VCs have opted for a couple of approaches:

  • Move away from SVB: Others have fully pulled out their funds from SVB and moved to a bigger bank — “the scar tissue is very very deep,” says Logikcull CEO Andy Wilson.
  • A mix of banks: A growing group of companies are doing it all, keeping some funds in SVB (typically $250,000 or less) and putting the rest in one or more other banks.
  • Some are surely opting to stick with SVB, though it's unclear how popular this this approach is.

Between the lines: While not a universal sentiment, a non-trivial portion of the startup world says SVB should survive and remain a sustainable business. This would be a good outcome for the U.S. banking system, and because SVB itself is a unique startup friendly institution.

  • A group of VCs put out a support statement, advising startups to keep at least 50% of their cash at the embattled bank (as of late Friday, it still hasn't found a buyer).

The intrigue: “I miss SVB” has become a growing refrain from folks who’ve opened new accounts at other banks and noticed the differences in the customer experience.

  • Also, the minimum balances at other banks are posing a challenge for smaller companies looking for SVB alternatives.

Meanwhile: A slew of fintech companies providing various services, to startups and other businesses, have stepped in to offer alternatives to SVB, and banks in general. For example:

  • Brex, best known for its corporate credit cards for startups, announced over the weekend emergency credit lines for companies. It also offers various other cash management options like the ability to split funds across several banks, in FDIC-insured $250,000 chunks.
  • Arc, which also offers a similar slew of services and rolled out same-day payroll financing and venture debt this week, said on Wednesday that since the prior Thursday, it’s seen “15x growth in deposit volumes and 500+ applications for hundreds of millions in both short-and-long-term financing.”
  • Ramp, yet another fintech startup focused on business cash management, set up a referral program to direct customers to alternative banks, facilitating over $1 billion in deposits within the first 48 hours after SVB shut down.

Yes, but: These fintech companies have some limitations — namely, that they aren’t banks.

  • “[Banks are] always better at doing loans because they have the lowest cost of capital,” Brex CEO Henrique Dubugras tells Axios, adding that his company returned its SVB funds to the bank and even added a little more.

The bottom line: The past week has been an education in cash management for Silicon Valley.

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