The Best Banks for Funded Startups

VC backed startups have specialized banking needs that can not be met by traditional small-business focused banks. Founders that have raised professional funding need to look for the best banks for startups, financial institutions that provide good customer service, solid technical integrations, offer startup-focused advice and products - all while being financially stable. The early-stage finance world changed in the first part of 2023, with the failure of Silicon Valley Bank, FRB and several other startup-focused banks. Where founders kept their businesses’ money suddenly mattered, and our team must have fielded over 100 calls from panicked founders worried about their companies’ checking accounts. Today, we recommend that startups don’t take where they keep their cash for granted, don’t rely on a single financial player, and seek safety in addition to ease of use. Thankfully, all of this is possible! Let’s dive into how to get the best bank for your startup.

Here’s our breakdown of many of the institutions we regularly work with. Some of these are not technically banks, but have an underlying relationship with a bank. We encourage you to perform your own diligence on any financial institution before you establish a relationship.

Most VC-backed startups we work with now have two banks – after the SVB crisis, the median number of banks our clients work with went to two from one, and we are seeing VC term sheets that request that the startup uses two accounts. 

This is a pretty big change from what we saw prior to the startup banking crisis - founders used to pick a bank, and then basically forget about it until they were big enough to need a treasury function to manage the millions and millions of VC dollars they had raised.

Why have multiple banks?

Multiple banks let startups have a backup in case their first bank gets into difficulty. Having a second bank, already set up, means that it’s much easier to wire money out quickly. One of the major issues we saw founders have during the SVB crisis was that they were unable to open a second bank account fast enough to get money out of SVB before the FDIC took it over and froze their funds. 

Secondly, having an additional bank means that a startup can get double the FDIC coverage limit of $250,000. In a perfect world, it’s not a bad idea to park at least one month of payroll in a second financial institution, so that if there is another financial crisis you’ve got enough cash to pay your employees for the coming month.

Third, many of the supposedly (and hopefully) safest banks like JP Morgan or Wells Fargo don’t have the best banking interface or infrastructure for startups. So having an operating account with a more nimble bank, and then a safety account with a bulge bracket/”too big to fail” bank makes a lot of sense. Basically, one bank is picked because it has a solid product, feature set and UX, and the other is there for safety.

Of course, startups with only a little cash may not have enough to effectively have two financial institutions. 

There’s no hard or fast rules around how many accounts a startup should have, but there are some general guidelines you can follow. As your company grows, you’ll need more bank accounts. And startups in different industries need different types of accounts. While almost every company needs a payroll account, for example, not every company may need a merchant services account. With that in mind, we’ve created a tool to give you an idea of what bank accounts your startup may need.  

Before the SVB failure, most founders probably didn’t pay much attention to Federal Deposit Insurance Corporation (FDIC) insurance for their company bank accounts. Now founders are paying much more attention to where they’re placing their money and looking for safer ways to manage their cash.

FDIC insurance protects individual bank deposits up to $250,000, which is typically enough for most individuals. However, startups can and do have millions in venture capital, and those amounts far exceed the FDIC limit. Founders and CEOs, as fiduciaries for their companies, need to focus on three tenets of cash management: Safety, liquidity, and managing risk. Safety should always be your primary objective, and recent events have underscored that.

Many banks have developed Insured Cash Sweep (ICS) accounts that will distribute your money to accounts in a network of FDIC-insured banks in increments of $250,000. Your custodial bank will manage the distribution, and provide you with a consolidated report to reduce your administrative burden. Please note that while these types of accounts have been available for over 20 years, they’ve never been tested to see if the FDIC would completely reimburse losses.

Before choosing a financial institution, talk with them about their specific products to make sure those products meet your needs and your cash management policy. Some of our executives have invested in some of the financial institutions we list here, and if you use our links you may get better pricing and we may receive a referral payment.

Startups with cash balances that exceed their bank’s insured cash sweep limits, or that would like to further diversify their banking position to reduce risk and improve safety, may want to consider investing in short-term government debt. 

Companies can access short-term government bonds by purchasing them directly from the US Department of the Treasury, or by working with their financial providers to purchase bonds or invest in money market funds. 

Money market funds invest in highly liquid short-term investments like US Treasuries, which are backed by the government. Money market funds, while not FDIC-insured, are considered very low-risk investments and offer startups a high degree of safety for their funds. 

All of the best startup banks have treasury or cash management teams that can allocate client cash into these various products. The very best startup banks also have good to great online interfaces where it’s easy for a founder to manage and understand how their company’s cash is allocated across these various products – although many of the bulge bracket banks like to get on the phone to set up a specialized account.

An “escape hatch” bank is a bank where startups are now keeping at least one payroll’s worth of cash. It’s separate from their primary bank, and it has a funded account that can be used in an emergency – and where funds can quickly be wired if needed.

This is a safeguard that comes as a direct response to the Silicon Valley Bank crisis which, as we know, really shook up a lot of companies. Now, as a precaution in case of another crash at a bank like SVB, startups are keeping at least one payroll run at a secondary or “escape hatch” bank.

Missing payroll would be a serious problem for any business

The SVB crisis is still fresh for everybody, and one of the worst things that came out of the crash was how payroll was almost missed for thousands of companies. If the government hadn’t stepped in the day they did payroll would have been totally missed. This would have led to an HR crisis involving penalties, lawsuits, and a lot of damage to companies.

It was a close call and everyone has learned from that situation. So now we are seeing, and recommending, that startups have a secondary or backup bank, where they keep at least one payroll’s worth of money. Preferably more than one payroll.

This should ideally be with a bank that’s “too big to fail,” such as JP Morgan, Bank of America, or Wells Fargo. Doing this means that if something were to happen at their main bank, the startup has the “escape hatch” bank account to fall back on. They will have reserves to run at least one payroll and it will give them a couple of weeks to navigate the crash.

We explain who some of the best banks for startups are here. At this moment, the median startup that we work with has two banking relationships, one that they operate out of and another where a small amount of cash is stored. 

One payroll is good, but more is better

For practical reasons, companies are actually keeping a lot more than just one payroll’s worth of money in the “escape hatch” bank. They are also buying US Treasuries directly as well as money market funds, and they’re using money market accounts that have high interest rates to ensure as much of a safety net as possible. 

However, the bottom line is, you simply never want to miss a payroll. It triggers a number of HR problems and financial penalties. So, at the very least, we suggest having an escape hatch bank that you can switch your payroll provider to should there be another crisis like SVB. The average Kruze client now has two banks and we are totally behind this as a logical safety precaution.

People ask us all the time how we differentiate amongst others in our space, and how we manage our relationships to me is the number one way we are different. We have a single point of contact for our clients in each of those geographies. So, when you come to Bridge Bank as a Series A company, you’re going to be working with that same team throughout the entirety of your relationship with the bank. And that person is in your geography, in your time zone, and is hopefully someone and ideally someone that you use for things beyond questions about banking. We want you to ask us when you want introductions to VCs or, of course, temps, CFO, and accounting firms, and attorneys and use our network to help you. We want to have this be a relationship, not just a banking transaction. And we do that by ensuring that people have their relationships with the individuals at the bank, not just with the bank, and that’s that continuity in the relationship management in region, which in our opinion sets us apart.

Mike Lederman, Senior Managing Director - Bridge Bank

Listen to the entire interview with Mike here.

We want them (our startup clients) to do very well. As an entrepreneur, as maybe just as a human, I just want these entrepreneurs to do really well and I want Mercury to be, hopefully, a part of their success, whether it’s just making their life easier, giving them a bank account as soon as they want it all or we can build tools, like APIs, and help them understand their finances. If we can just enable a even 2% improvement in the startup’s life, I would feel great about that.

Immad Akhund, Founder and CEO

Listen to the full banking interview here.

• How to read your startup’s bank statement
• Checklist for moving bank accounts
• Negotiating how much cash a startup must keep in the bank
• What are insured cash sweeps for FDIC insured deposits?
• What are Demand Deposit Sweeps?
• What kind of bank account should a startup open?
• When should you create a company bank account?
• Startup cash management
• Market share blog