Where exactly did the startups that banked with Silicon Valley Bank (SVB) and First Republic Bank (FRB) move their money to last spring, when those institutions started to fail?
To find out, national accounting firm Kruze Consulting, based in San Francisco, analyzed data on the banking relationships of 400 venture-funded client companies (mostly in the tech industry) with more than $4 billion in deposits.
The results showed that startups worked quickly to move money out of SVB and FRB to JP Morgan Chase, Morgan Stanley, and even two fintech firms with specialized products. From February to June 2023, SVB saw its average deposits from the 400 startups drop to $4 million from $8.5 million, and FRB’s average fell to $2.7 million from $8.8 million.
The amount of cash one of those startups kept at any single bank dropped from more than $6.25 million to $4 million since the mini-crisis started in March 2023.
The unpublished data shows JP Morgan Chase was the biggest beneficiary of the banking mini-crisis, growing its deposit market share among those startups to more than 30% as of June 2023 from 11% in December 2022.
Besides being a too-big-too-fail institution, Chase benefited because it assembled a team that could quickly onboard startups, said Healy Jones, vice president of financial strategy at Kruze Consulting.
“It was very hard to open an account during the crisis, particularly with some large banks,” Jones said.
Nontraditional financial services companies Mercury and Brex also saw deposit inflows from the startups. Healy said Mercury is very focused on the VC market and has an excellent user interface compared to a legacy bank. Brex offers corporate credit cards and a cash management account through which startups can earn a yield on idle funds. Brex and Mercury have sweep products that allow FDIC insurance coverage on up to $5 million or more in deposits.
New Competition
Some startups kept some of their money at SVB (acquired by First Citizens Bank) and FRB (acquired by JP Morgan Chase). But the battle for startups’ money is not over, said Jones, as many banks are starting to compete around yield.
Some startups will have their venture debt agreements with SVB expiring, so they may shop around for a new bank, said Jones. There are also new entrants like HSBC, which hired 30 or 40 SVB bankers to roll out a venture debt offering.
Venture capitalists and founders are also unsure what will happen to FRB now that JP Morgan Chase owns it, said Jones, because there’s been an exodus of former First Republic personnel. First Republic lost more than $400 million in deposits from the startups studied from February to June 2023.
First Republic “was actually an amazing bank for startup founders,” said Jones. “They had tremendous service.”
Startups are better prepared for the next banking crisis. Most have two or more banks, said Jones, most commonly an operating bank and at a separate institution a treasury or cash yield account.
“The thing that's different is, since the median company has two banks, they can transfer money really quickly,” said Jones. “The bottleneck of the last bank run was that people had to open an account.”
Now, however, with the accounts open, startup founders or their CFOs “have probably already transferred money between them,” Jones said. “We can have a bank run on our phones now because there's nothing holding someone back from moving all their money to the second spot.”