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Comment by ericpauley | Hacker News Reader

I'm really curious why banks like this are popular in the first place. I get why startups would want to lend from them, but what is the advantage of parking cash in a "startup-focused" bank? The rest of the business is exciting/risky enough, wouldn't you want your banking to be as boring as possible?

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Banks don't understand startups. Startups have no history and just appear out of thin air with millions of dollars in their bank account. And then they proceed to burn tens if not hundreds of thousands of dollars month on month until they die, or get flooded with more millions.

That's some weird stuff!!

A bank that understands this, knows it's not fraudulent, and makes it easy to withdraw, deposit, get credit cards, give loans/venture debt, has a competitive advantage in this niche but highly lucrative sector—given they can operate with the right risk controls.

SVB has been a great bank for startups, they're no rookie at this stuff considering they've been around for 4 decades. However it seems like their investor communications and PR has been lacking

+this. We had BoA offer us a $10k credit card limit when we were discussing keeping over $1m on deposit at all times, simply because we're still running a loss. (And they couldn't figure out how to implement two party control for large transfers). Was a headache.

We stayed with SVB.

I feel like this is unlikely. Startups didn't spring into existence in 2005. Every business was a startup at one point. Even venture capital isn't new. I'd wager every suit and tie wall st old guard firm knows how to handle startups just fine. SVB just had the right branding for young entrepreneurs who assumed JP Morgan wouldn't talk to them.

They might know how to, but they choose not to.

In that case it would just SVB has a much higher risk tolerance and it seems that may have bitten them in the ass.

Indeed: this may portend a very rough few years for small businesses of any type and location being able to access the kind of banking services they have been able to until now.

Having worked with both major banks (BoA, Chase) and startup focused banks (SVB, First Republic, Square1) - you’re incorrect. BoA and Chase are great for personal capital, but for startups they are horrendous. Huge pains to convince them you’re not a drug dealer and aren’t going to die tomorrow. SVB, FRB, etc., understand startups and make it possible to… bank with them.

> knows it's not fraudulent

so a fraudster could easily exploit this bank then?

To add to the other comments, SVB also courts startup founders for their private banking arm, and there, too, the benefit is that they actually understand startup founders.

Example: After our startup went up in flames in 2017 my wife and I (co-founders) got "regular jobs" with nice salaries. Some time later, we tried to refinance our mortgage with Chase. The banker at Chase was very happy to serve us right up until the point where he asked if we had more than 20% ownership stake in any company. I said, well, yes, technically we own 80% of our defunct startup. He then said he had to look at the startup's tax returns for the last two years. I was like... ok, that's weird, but sure. He then informed us that we did not quality for a loan because he had to consider our company's income along with our own, and our company had lost half a million dollars in its last year of operation, therefore he considered us to have lost half a million dollars.

I was like... "Do you even know what a C corp is?"

We ended up switching to SVB, which had no problem refinancing our mortgage.

(Fortunately our balance in that account today is within FDIC-insured limits...)

I understand that a C corp is its own legal entity, but from a risk management perspective, the bank’s approach makes perfect sense.

Which bank? There are two different banks here with very different risk management approaches.

One is still standing, the other seems to be insolvent.

Indeed, SVB is still standing while JP Morgan Chase got a $25 billion dollar bailout in 2008.

https://money.cnn.com/news/specials/storysupplement/bankbail...

And they are also so good at due diligence that they got scammed for $175 million: https://www.forbes.com/sites/alexandralevine/2023/01/11/jp-m...

How? I'm no banker, but to me their financial picture reads: married couple, both currently have nice salary working at companies X and Y, together have proven ability to raise millions in capital. I would say yes please take our refi loan, and do come back if you need anything else.

Why would a proven ability to raise millions in business capital (and, apparently, to subsequently hemorrhage it) make someone a better credit risk for their home mortgage?

Their financial history includes borrowing lots of money, taking a big risk, and losing a lot of that money. Not necessarily bad, but it’s reality. Just because that activity happened under a different legal entity doesn’t make it irrelevant. The mortgage applicants own nearly all of the company that is losing tons of cash. It is an important part of their financial history.

Raising capital and then burning it all is what most startups do. Investors put in money knowing this was the most likely outcome. The whole point of the C corp is to keep the investor money isolated from personal money.

I'm disappointed that we failed but I think it shouldn't affect our personal credit one way or the other.

interesting, i didn't realize sandstorm.io had gone up in flames; that explains why i don't hear much about it any more

I was in a similar situation when my startup went up in flames and I went to get a mortgage, but I just showed the bank copies of the dissolution paperwork and they accepted that without any further questions. If a startup really is defunct it usually makes sense to formally dissolve it - otherwise you're on the hook for franchise taxes, registered agent fees, etc, and those can add up after a few years.

The company still existed at the time because we were still operating our paid service in maintenance mode for a while since we didn't want to cut people off. (The cash flow involved was trivial.)

Funnily, we ended up not being able to dissolve for 5 years because some dude decided to sue us (though this actually happened after Chase turned down the refi). I'm not going to get into the details except to say eventually his lawyer withdrew, he was self-representing, and then he didn't show up for court appearances, and so it was dismissed. 5 years later. This also did not bother SVB, when they looked at the details.

Anyway we finally dissolved last year.

Well, just as an example SVB gave my startup a bank account and a no personal recourse credit card days after we'd formed the corporation. No way you'd get that from BofA.

They understand the startup ecosystem in a way that big banks don't. Now there's some competition from startup-focused banks like Brex and Mercury, but a five years ago SVB was one of the only games in town.

I totally get why you’d borrow from them, and the card sounds nice, but do you want to be depositing your money with businesses that offer no personal recourse credit cards to brand new businesses?

What’s wrong with that? Credit cards for businesses can be very low risk with the right KYC and underwriting controls.

Consider that startups are most often sitting on mountains of cash.

Also, having founders personally guarantee a credit card by putting up a house as collateral is not ideal for anyone.

FWIW, Mercury and Brex are not banks.

Mercury provides services and a frontend, but their banking services are provided by Choice Financial and Evolve.

Brex is also not bank. The Brex business account is an FDIC Sweep account, which constantly moves your balances across multiple banks to keep you within the FDIC limits.

I got a BofA checking account, credits cards and a business car loan in the first month after setting up a brand new corp with 0 assets. It's almost kind of funny how it worked exactly as you described, at BofA.

P.S. which makes me wonder how much of SVB friendliness was just smart marketing. If you look up and down this thread, most of the SVB "explanations" here are strictly circular: "they are good for startups because they are good for startups", with little to none useful info.

Sure and there’s also anecdotes of larger banks doing the exact opposite

Ok, let's chalk it up to my irresistible charm when I showed up at the branch that day, I can live with that.

I'm guessing your corp didn't have a 1 million dollar check to deposit, with expectations that most of that would get sent out to employees and AWS/GCP over the next few years, and that you would be receiving another 10 million dollars shortly thereafter.

Bragging about getting a car loan when (I assume) you have good history and credit? Unless it was a $1.5m Mclaren P1 supercar or something, that's not remotely in the same category.

the person i was replying to said no way a brand new corp can get an account or credit cards, they didn't say anything about millions. That directly contradicted my experience, and despite being "anecdotal", I'm sure i was subject to the same rules and equations as everyone else.

If you want another anecdote - this one has millions in it - my last startup banked with Wells Fargo from pre-seed right up to series A with >10mil in three funding rounds and never had a single problem. Must be my crazy luck here as well!

At any rate, SVB is dead now, so it's pointless to argue whether they were really a startup's best friend or just hyped that up. They are not anyone's friend anymore, they are dead and the only real question here is how to get the damn money back from them.

This is the Wells Fargo that got in trouble for creating 2.1 million fake accounts for customers who never asked for them, got caught by the CFPB, paid $185 million in fines, and has been desperate for customers ever since? Yeah, actually, you did get lucky with them, they really do want your business.

they provide services/incentivies specifically catered to startups and their needs (eg free checking, aws credits, payment processing APIs/etc)

and not unlike aws/stripe/etc they want to be the bank for small companies that grow into huge companies. startups are a good segment to target (eg like vc) because they might also turn into a large company with much more cash and more banking needs

People care about convenience of locations, ATMs, online experience, customer service, savings rate, (lack of) fees, rewards. The bank's underlying risk profile is irrelevant for the vast majority of customers. If you have <$250K in your account the money is safe either way.

Svb has relatively few normal customers. It’s almost all startups and vcs

Gives you access to the upside of the start up at a lower risk cost compared to VC. I assume you are talking about people who are supplying the capital for the bank.

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