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My general understanding is that with many banks, if you walked in and said "Ya a bunch of people gave us $10M, and we're basically going to be cash flow negative for the next decade, will run out of money unless people invest again, and we're 90% likely to be out of business in 5 years", they'd likely not want to work with you. They especially wouldn't be offering you additional lines of credit.
SVB on the other hand seemed to be understanding that the business model of SV start-ups was different than more traditional companies, and was a lot more willing to work with them and accept a level of risk.
It sure seems now that the risk associated there didn't necessarily work out (perhaps the biggest understatement I've made in a long time), but that's the reason that so many businesses in the tech start-up/bay-area used them.
As to why they used it solely, I can't answer,m but I've heard that raising debt from SVB required you to keep the majority of your account holdings with SVB (which really doesn't seem that unreasonable)
Also, it is not a good look with SVB's CEO personally lobbied to be excluded from stress tests that more than likely would have prevented SVB from YOLO'ing on 10 yr duration MBS.
We need to get to a point where asset reporting is weekly, or ideally daily, so risks are out in the open.
When you're a startup founder, you have to focus your efforts on the unique problem you are trying to solve.
For generic problems like "which bank should I use" taking a shortcut like "the one my peers are using already" is generally a great idea - saves you from having to waste your time investigating options that usually don't make a material difference to your business.
When you're a founder, the unique problem that needs to be foremost in your mind is the business. You don't make business decisions based on "this is what everyone around me is doing".
If you don't have the time, talent, or energy to get into the minutia of running the business, you do at least hire good people who are into that sort of thing. Good people who do things like analyze situations, determine best approaches, etc.
> taking a shortcut like "the one my peers are using already" is generally a great idea
No. That's a really dumb idea. Is that really a common approach in SV startup culture?
Yes, absolutely.
As a founder, especially at the start of your company, you're responsible for _everything_. You need to figure out how to do product roadmap planning, and sales, and marketing, and hiring, and HR, and run payroll, and work with investors, and manage an office... anything that can help shortcut a decision that isn't fundamental to the unique opportunity your business is going after is very welcome.
Where an established company might have a whole role (or even a whole team) who are responsible for selecting a bank account, you need to get one setup RIGHT NOW because you just landed your first investment check and you need somewhere to put it!
Have you seen the TV show Silicon Valley? There's a scene in the first series where they've just landed their first cheque, but they don't have a bank account yet so they have nowhere to pay it in!
This happened to us when we founded a YC company back in January 2011. We went to the Mountain View branch of Silicon Valley Bank because someone told us that they would know what to do with us. They sorted us out.
We did not pause for one second to check who their Chief Risk Officer was.
I know, I've been a founder more than once. You are responsible for everything. When it comes to the things you don't have expertise in, or don't have the time for, you need to bring in people who do. I wouldn't even begin to entertain the thought of starting a business without having an accountant and attorney at least on retainer.
> you need to get one setup RIGHT NOW because you just landed your first investment check and you need somewhere to put it!
Those checks don't come without you knowing they're coming, though. Surely you'd have already have made a plan for what you're going to do with them.
> We went to the Mountain View branch of Silicon Valley Bank because someone told us that they would know what to do with us.
You had no actual experts to consult about this?
P = group makes better decisions than individual
Q = there’s no downside to everyone making the same decision
P && Q => yay groupthink
~P && Q => could go either way
P && ~Q => could go either way
~P && ~Q => groupthink is bad
P.S I mean for “not obvious” to be load bearing. Upthread, someone says SVB is much easier to work with for founders. If so, maybe it was a reasonable decision. But if so, that’s on the merits (aka P && ~Q).
I'm saying that, had this situation not happened, defaulting to "what bank do other companies like us use?" would have been a perfectly reasonable strategy.
Also, I’d really say that founders probably weren’t the ideal people to be thinking about this risk, VCs were. If you advise a portfolio of companies, you’re better positioned to think about broad risks.
Not sure why startups used it solely, but I can see why startups used SVB. One great reason is that they provided lines of credit to startups and "got it", understanding the typical business setup and risks of a startup and was able to underwrite the LoC.
I used Chase bank for my startup and they would have chased me out with a pitchfork if I even inquired about a Line of Credit, even if it was a pull-forward of predicable SaaS revenue.
This problem is found everywhere where humanity organizes and cooperates in groups. It’s in no way unique to SV, tech, or any other field. It’s also the dominant style in the corporate world, such as "Go along, to get along".
Yes, they allowed non-US founders to open a bank account for their companies. They weren't the only one, but many other banks won't do it.
yeah, they gave the company insane terms for additional cash and sweetheart deals for when your founder or buddies needed a mortgage. No wonder everyone used them.