Venture capital backed startups have very different banking needs vs traditional small businesses. We’ve worked with hundreds of funded companies, and right now the best banks for startups are SVB, FRB, Rho and Mercury.
A bank is a very important piece of an early-stage company’s financial infrastructure. The best startup banks need to be easy to use and financially (and technically) stable.
Founders should look for several critical things in their financial institution:
From a stability standpoint, financial stability is imperative because if a financial institution goes out of business it can be majorly disruptive. In the United States, most banks have FDIC insured deposit products. These usually don’t offer much yield, but the actual deposits are theoretically protected up to a certain level. However, even if a financial firm did go out of business, getting access to the cash in the accounts could be difficult for a period of time. And so it's important to pick a well capitalized institution.
The best banks have great account managers - founders should expect a stable relationship with an account manager who gets to know the business over time. Great phone support is also extremely important, as startups may need to wire (or receive) large amounts of cash.
Funded startups tend to have many transactions flowing into and out of their checking account. Keeping track of all of these transactions can be next to impossible without automation. So a startup must use a provider that has simple and easy integration with the bank feeds into QuickBooks. This automation will save founders time if they do their own bookkeeping, and will save them money if they pay outsourced accountants to do the work.
A clean bank feed will include the vendor, the dollar amount and the date. Many financial institutions are using Plaid, a technology provider for automating the bank feed extraction. Plaid has become one of the big standards of data management in the banking system and was just bought by Visa for $5.3 billion.
Unlike traditional small businesses, companies that raise VC or seed financing have cash. Strong cash management is the ability to generate interest on your deposits. Generating interest on cash is a great way to pay for an extra engineer or an extra salesperson. Given the current, low-interest rate environment, getting yield is not easy. But the best financial institutions will know how to structure deposits to generate some extra return.
However, it’s important not to take too much risk in a cash management plan. More exotic securities like auction rate securities may generate some extra interest, but create real risk to the safety of the deposit - they usually are not FDIC insured. The banks our clients have success with can often structure multiple deposit accounts; one to actually run the operations of the business, and the other to generate returns.
And then the final thing to look for in a great startup bank is venture debt. This is not totally necessary, as there are plenty of independent venture debt funds, but it can be a nice way to extend a startup’s runway. One item that can make bank lenders more challenging that fund lenders is certain clauses like material adverse change clauses or investor abandonment clauses, which are pretty common in bank lending.
Small business bankers get confused by Silicon Valley startups; they don’t understand how funded companies burn cash every month. It is best to pick an institution that is specialized in startups.
For the early-stage, high growth companies, First Republic and Silicon Valley Bank, are the biggest players. We also see growing market share from two newcomers, Mercury and Rho. And companies like Brex are starting to edge toward becoming actual banks, but aren’t quite there yet.
The top startup banks are:
Silicon Valley BankSilicon Valley Bank is the market leader in technology startups for a reason. With a well-rounded product line up and seasoned relationship managers, they are often the first recommendation given by venture capitalists to their new portfolio companies.
First Republic BankThe second largest, startup focused, player in Silicon Valley, FRB offers excellent customer service and strong deposit and cash management products. Their technology integrations are stable and reliable.
RhoRho is a new comer, focused on helping funded companies with their cash management and credit card needs. Rho has strong perks and a great technology / UX.
MercuryMercury - Mercury is another new player, creating a technology forward financial institution. They have a strong feed and excellent a user interface.
Kruze Consulting COO
Let’s review Silicon Valley Bank, and discuss how it is a good option for venture backed companies. The first thing to know is that people in Silicon Valley affectionately refer to Silicon Valley Bank as SVB.
And SVB is one of our big partners at Kruze Consulting. And so we wanted to just do a review, explaining the strengths of SVB, so people who may be newer to the startup community could get to know it better. SVB is still relatively young. It was founded in 1982, so almost about 40 years old. But from the beginning, they had a really big focus on early-stage companies and entrepreneurs. That was like the big bet behind the bank. And you can look at their market cap. It really, really paid off. I think they had about $70 billion worth of assets, like deposits, loans they own things like that at the end of 2019. So, it's not a small bank anymore. It's had huge growth. It's a big institution. And I think the reason why Kruze really likes SVB really is kind of three things.
First, it has just a complete product suite. SVB really offers every product or service a young business or someone in the startup community could want. The second thing is a really big focus on customer support and making customers, aka startups and venture capitalists successful, which we really appreciate as an accounting firm that services those clients. And then the third thing is, SVB is a fast mover on filling gaps in their product or service line. And I'll have a couple of examples of that, but the bank invests a lot in technology and it moves fast if there's a gap, which again we really appreciate because it's nice working with one institutional bank it just makes things a lot simpler. These three reasons are part of why SVB is one of the best business banks for the tech community.
So, let's talk about the product suite. So first of all, obviously SVB takes deposits like every other institution, they have a really good money management program. They put you in different kinds of money market funds, different risks levels. I always encourage low-risk and liquid. But if you're going to get a little more adventurous, they have that option for you too. they actually have a dedicated team that does the money market stuff. They provide wire services, bill pay, stuff like that, that early-stage companies are going to need. And then one of their big differentiators is venture debt.
Across the country, there are not many financial partners that actually want to lend money to young businesses or companies that are losing money. It's really hard I mean, think about it. A bank, SVB is too, federally regulated. And so making a lot of risky loans is really tough for the biggest business banks like Wells Fargos, Chase, etc. SVB has always lent money to startups. And they're very, very smart about how they underwrite. And they're not just underwriting the company that is losing money but hopefully building enterprise value, but they're also underwriting the investor syndicate. And because they have such deep relationships with the investors across Silicon Valley, in New York and Santa Monica, they really have a good picture of what's going on in the company so they can confidently make loans. So being a financial partner that loans money to early-stage businesses is really, really nice. And even at the later stage, they're doing syndicated loans and playing in a lot bigger type of loans for later-stage companies or even companies that have IPO'd than they would've 10 years ago. So they've had a lot of growth. In the old days SVB would bow out at the late-stage or when a company went public, but now they're participating in those deals.
The other thing about SVB is they do a lot of personal banking things that help entrepreneurs or help team members, or even help venture capitalists. They do mortgages, they do capital call loans for venture capitalists who need to invest money in their own fund. They do student loan lending. There's a lot of different things they do to help you keep you in the family a little bit, and they help you at the margin, which is really nice if you're someone who needs to buy a house or something like that and you're a startup person, SVB is going to understand that you're lower salary, but have other assets like stock options or things like that, that could be really valuable.
And then the final product suite to talk about is just the fact that they serve venture capital funds, too. They have a big fund money management business. They are also known for helping and introducing big LPs. And even they are an LP in a lot of funds themselves to general partners like venture capitalists, who are trying to build their capital base. And so SVB has just the full suite of products. Like they're helping the venture capitalists, they're helping the young businesses and they're helping the people who work at them. It's really, really impressive. So that's one of the reasons we really like working with them.
The next thing is just a big emphasis on customer support. So if you're a young company working with SVB, you're going to have an account manager assigned to you. And the nice thing is they're not trying to sell you stuff all the time. They're there when you need them. They have a really good email support system. They give you their phone numbers, they're easy to reach. And so I think that's one of the big things. They're not like a big corporate entity that has time to wait or sit around. They really usually just need an answer within 24 hours. And SVB is really good at that. Again, we talked about the fund management business, but having that synergy where they're seeing the funds, they can make introductions for you as a startup, they can make introductions for you as a VC. If there are companies that you really want to meet and they bank with SVB, they can make that intro. It's really, really powerful.
And then I think the other thing we like about them on the customer support side is they do think about the accounting firms like Kruze Consulting. Like, our life can be made so much easier when we're working with a good bank. There are questions that pop up, or our clients need venture debt, or our clients need a new product, maybe like a credit card or something like that. And getting that quick response is really, really helpful. And just, it's nice if you're going to do debt to not have to change. If you're going to work with another bank, you're going to have to change your bank accounts over to that other bank. Thus, it's nice that if our clients are already working with SVB and we're going to need to raise venture debt for that client, we can just stay at SVB. We don't have to move. People kind of underestimate the amount of mindshare and pain-in-the-butt-ness of changing bank accounts.
And so it's really nice that SVB has all that stuff. It just makes their customer support a lot better. Now, the final thing we'll talk about is just, Silicon Valley Bank has proven that they are fast movers and they're really good at filling holes in their product line. A good example, we talked about credit cards a little bit, but the old SVB credit card system was just not that great. Support wasn't very good. The rewards were really poor. There were personal guarantees and Brex came into the market. And I think Brex did some damage in the first couple of years, but SVB responded with their SVB Innovator's card, which is a tailor-made credit card for startups. There's no personal guarantee. They really increased the rewards. Most importantly, the customer support and integration into the rest of the SVB banking portal is so much better. It used to be such a nightmare trying to connect the old SVB credit card system to QuickBooks, and we'd have a bunch of errors and a bunch of problems. And so the SVB Innovator's card is a really good example of that.
Another one people don't really realize, but Stripe was founded and runs on SVB's payment rails. I mean, they are responsible for helping one of the biggest payment innovators in all of Silicon Valley in the tech industry, get there. Without that partnership with Stripe, without the partnership with SVB, Stripe would have probably had a really difficult time getting going in the early days. And then the final thing on just improving their systems is they've invested a lot of money. They've even done some acquisitions and bought some small startups to make their portal and all the data connections so much easier to work with if you're an accountant.
The industry is catching up to them now on that, but they've been the best kind of portal integration partner with QuickBooks and some of the other systems that we use for many, many years. It got to the point wherein past years we had to switch clients off other banks to SVB, because it was such a pain to work with those other banks. They were costing our clients money and costing us money. And so SVB has really shined on that infrastructure. And so we really appreciate it.
So those are the big reasons to work with SVB. As I said, at Kruze, SVB has a really substantial market share. We're a proud SVB partner. A lot of our clients bank with Silicon Valley Bank, and overall they get great reviews from our client base.
Kruze Consulting COO
First Republic is one of the dominant banks in the startup category, and so we wanted to review First Republic's strengths and why people like working with them. The first one and definitely the single most important reason people like First Republic is they have phenomenal customer service like white glove, call you back in 10 minutes, get it done no matter what, type of customer service. I'm an entrepreneur myself and so as an entrepreneur and someone who works with a ton of entrepreneurs, I really, really value that.
There's nothing worse than sitting on hold or having to wait three days to get called back or just running to a lot of red tape at a bank, and First Republic is the anti-red tape bank. They just make things happen. They get it done, they do it with a smile, they're super courteous. So their customer service is just beyond anything I've seen in the banking industry, it’s really the best, and really I'd put it up there with like the top companies across any industry, it's really, really phenomenal and that's one of the reasons I love First Republic and give them such a strong review.
Now, there are some other great things about First Republic, though. They've made a really big investment in their mobile apps. To be honest, their mobile apps really lagged the market until 2020, and this year they really put a lot of money in it and it's gotten significantly better to the point where I actually enjoy using it. It used to be kind of a slog and even their online portal terminal was kind of a slog, but they've just made huge improvements to give you some idea like probably five years ago, we were not recommending First Republic to our early-stage-company clients because the internet portal and the mobile apps just were not up to snuff.
But again, the companies just put so much money. You can tell they really care, I recently met some members of their internal innovation team. So they're serious about this. They're putting a lot of money into it and it really shows in the app experience. So that's another benefit for First Republic. The next one is old fashioned, but they have branches. It sounds kind of silly to say in this day and age, but having a branch you can walk into and make a deposit or handle a wire at the last minute, or even if you need to, you shouldn't really be doing this if you're a startup, but withdrawing cash or things like that is actually really helpful.
There are just some things that can't be done over the phone, or you don't want to scan, check images in over your mobile app because sometimes it makes it hard for the account to see that kind of stuff. Just having a branch is really nice, and maybe it's because I'm a people person, but again, I'm usually in a hurry, I want to get things done very, very quickly and sometimes just going to the branches is the easiest thing, and they have branches in all of the major startup hubs, even in some of the high net worth hubs, like Jackson Hole, Wyoming and places like that. You'll find a First Republic Bank branch. So that's another benefit.
Now, there are a couple of other things in that they do some ancillary services for young businesses or founders or employees of startups that are really, really helpful. The two being mortgages, and if you're working in the startup ecosystem, odds are, you're not like maximizing your pay. Like you could probably be making more money at a bigger company, but you've chosen to help build something and change the world, and so you typically, there's a little bit of a trade-off on salary and you usually get some equity alongside that. And so, First Republic understands the trade-off that founders make and employees make on salary and so they're very, very flexible on margins.
Now, they're not going to underwrite a mortgage that you can't afford, but there's just a lot more wiggle room and again, that customer-focus really comes into play there. So that's really, really helpful, especially if you're a founder and you've probably been paying yourself under market for three or four years. That is a huge differentiator if you're trying to buy a house. Another thing along those lines is student loan financing. First Republic has a really aggressive student loan financing or refinancing program for early-stage companies’ employees, and I know a bunch of Kruze Consulting team members who have taken advantage of that. It's really, really low interest rates, and basically, they're using the halo of the company that you work with.
They know you're working with a good company or good startup, and so that factors into their underwriting criteria and allows them to be a lot more aggressive on the student loans. So I know we've made numerous announcements at Kruze that the First Republic student loan financing program is something that everyone should investigate, and a bunch of people have taken advantage of that. They know you're working with a good company or good startup, and so that factors into their underwriting criteria and allows them to be a lot more aggressive on the student loans. So I know we've made numerous announcements at Kruze that the First Republic student loan financing program is something that everyone should investigate, and a bunch of people have taken advantage of that.
Now there's another aspect of First Republic that young business founders and employees don't always think about, but it's actually very important. They have a huge fund management practice, meaning they manage the capital, the bank accounts, the capital call loans for tons of venture capital funds, and so that creates a really nice synergy in that they know all the fund managers, all the VCs, you're trying to get their attention or trying to get a meeting with them.
First Republic usually has a one-to-one relationship with them. In fact, they probably did their capital call loan, and they may even have done their mortgage and their fund probably has their cash sitting at First Republic, and so they can go above and beyond and make some really high-value intros for you. There's also just a nice little synergy when the VC knows that their companies are banking at First Republic. So I really, it's kind of an under the radar thing, but having that fund management, fund practice at First Republic is really beneficial to really everyone in the startup ecosystem.
So those are the big things, but I really want to come back to people as we wrap it up to just that customer-centric approach. It is again, above and beyond really anything I've experienced in the banking industry and I would put it up there with the top, Nordstrom's, Neiman Marcus, Southwest Airlines, all the companies that you read about that are really famous for their customer service, First Republic is at that level and should be mentioned in the same breath as those top tier companies across the world that take customer service really, really important. They might be the best business bank in terms of customer service, period.
So I hope that helps, check out First Republic, we really like them at Kruze and it's just a great bank to work with, thanks.
Kruze Consulting COO
Hey, it's Scott Orn at Kruze Consulting. And today I'm telling you about one of my favorite new startup tools, which is Rho Banking.
Rho is a banking app that a lot of startups are using. And the reason why I like Rho, is that it's built by serial entrepreneurs. Like these people have built companies before, so they really know what a founder thinks about and worries about and what they need from their bank. The company is based out of New York.
Now they've built a really beautiful interface. Like it's just so easy to use. It's almost like feeding your eyes cookies. It's just so nice to just look at it and navigate around. Very easy, very different from your typical bank login experience. So I really like Rho for that.
They also have a really great savings interest rate. So they're very generous on this. That number changes a lot, but they're always significantly higher than kind of the old school banks. The other thing I like about them is, they have FDIC insurance over all your deposits. This matters for venture backed companies, since they may raise many millions of dollars of funding - and the FDIC typically only insures $250,000.
But Rho built a little bit of technology that splits your money (this is invisible to you, you only see your total balance). You might raise $10, $20 million. You want all that to be insured. So it splits your money into micro accounts and makes sure everything is insured, which is pretty huge. And then the kind of clincher for me is that they are building basically an accounts payable solution inside of the bank. And so typically our clients use bill.com. But a lot of times bill.com is kind of tough to learn. It's not the most easy interface, it's kind of industrial strength. And so the early stage founders are kind of like, "Do I really need to use bill.com? Do I really need to spend a lot of time using this?" And it's not always super intuitive.
And so Rho is effectively replacing bill.com in that flow, and making it super easy to pay your vendors, to store the invoices, to label the transactions, and make sure they sync into QuickBooks, which makes our life a lot easier. That invoice aspect of it is really important. We need to be able to check the invoices, to see which months the service from your contractors was provided. Because if we don't know the months, we can't do accrual accounting and gap based accounting correctly. It just becomes like ugly cash accounting, which is not what you want and which makes your financials lumpy. So Rho is really pioneering, like this bill pay aspect inside of the bank.
And I'm just super excited about it. Like it's a really beautiful, easy to use solution, but it's got some real business applications that can save you time as a founder, make it a little easier, and frankly, save your accountant like us a lot of time. So check out Rho. It's R-H-O.co and it has an app interface as well. So check it out, we really like it.
And shout out to Rho. Great job team for building a really great solution. I love recommending new things that make everyone's life a lot easier. Thanks.
Kruze Consulting COO
I’d like to explain a bit about why bookkeepers like Mercury Bank.
Now, Mercury is a new startup bank. It focuses on catering to early-stage companies, and it's a venture-funded company itself. But it's getting a lot of market share, which is really exciting. We're seeing a lot of Mercury customers come over at Kruze.
And the big reason why startup bookkeepers like it is the bank feed is super easy to use, it integrates with QuickBooks nicely, and fits with a lot of our proprietary software, so it makes matching those transactions super easy.
And early-stage clients like it because they have a lot of great spend management tools. It's really informative, it helps them know what their cash burn looks like, and it's got a really great interface. Thus, with all three of those reasons combined, bookkeepers like Mercury.
Scott Orn and Healy Jones of Kruze Consulting break down the massive amount of innovation happening in the startup banking space.
Chief Operating Officer, CFA
Patrick Johnson of Silicon Valley Bank (SVB) stops by to talk about Startup Banking, Venture Debt, and the other ways SVB partners with founders and and investors to support innovation.
VP, Tech Banking
Silicon Valley Bank
Laurie Lumenti-Garty of Square One Bank joins Founders & Friends to explain the services that every startup should receive from its bank
Senior Vice President
Square One Bank
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