But it came with strings attached: you put all your companies' money here, far beyond FDIC insurance levels, and don't go anywhere else, and for that we'll get you a nice rate on this unrelated private deal.
Sounds pretty close to an investment where the investor shouldn't be made whole.
I never heard this to be the case. Yeah VC might recommend SVB but I’ve never seen or heard a term sheet that said you must put money in SVB. Once VC wires the money, it’s in the company’s control and they can put it or do whatever want with it (obviously within reasonable corporate governance). VCs don’t have much power, even if they do in some companies, you don’t want to spend it on something like where the company banks.
Companies put money in SVB because it was often the default option that everyone used that understood how startups operate.
Then in some cases, companies would raise additional venture debt from SVB and for that you had to park money there. I got invited to events too and rep pushed the debt as “dilution free money” (as opposed to normal money for equity vc deal).
And apparently some (many?) got private back-room deals as well, a prominent example linked on a sibling tree: https://twitter.com/bradocapital/status/1635644287630159872
There was some discussion on HN about some VCs putting it in term sheets. I don't know if it's true, I guess we won't find out because law suits have been averted.
When you're mixing private deals (for investores and founders) with company deals, you're usually on the hook for something. Letting them off the hook is nice, but it sends a terrible message and will only lead to greater implosions later.
You seem to be repeating nothing more than rumors you're unsure of.
If you claim VCs were demanding portfolio companies use svb, then let's hear names. I've raised money from multiple VCs and that's never been even hinted at.
We used svb because I've used Chase in the past. I know a bunch of stories that I'm not interesting in sharing publicly, but they're terrible. Here's one public story about what the "service" at Chase is like: the morons lost an updated phone number and almost shut down a small business with kyc inquiries dropped on them day of: https://twitter.com/joshtpm/status/1635083618380025858
The value of svb to us was they were a bank with a glowing rep, glowing ratings, good service when we called and asked for stuff, albeit with not particularly good software.
I don’t know if “backroom deals” means “relationship deals”. Basically every private bank operates with relationship deals, meaning they know who you are, what you do, and they know your assets, on which the relationship manager can make a call what kind of loans or other services to provide.
What SVB did was that they know your are vc/founder who raised from a16z or whatever and have this many assets etc. Because of that information they were willing to give you a loan on favorable terms because see low risk defaulting on your loans. Based on quick google search Jason Calacanis net worth around is $60-120M. It seems reasonable that he should be able to pay mortgage with that net worth and SVB might want to come by his house to maintain the relationship.
How every other bank does it: they look at your credit score, ask 2 years salary, ask if you own 20% of any company and some other basic questions. The feed it to some algorithm running in cobalt which gives them answer if it’s good to go or no. They don't care about your profession (except if it's something illegal or qustionable), the fact that you run $100M business or your personal assets. You might have $10M equity portfolio but normal bank doesn’t care because it’s not part of their mortgage/model questionnaire. If you say yes to 20% company ownership question, their model then tells them to in the company revenue (again not assets but taxes and revenue) and the answer likely might be no because ge banks don’t like bank entrepreneurs (even if company has $100M in their bank account).
IMO SVB knew much more about the people they were making loans for than most common banks. Their main risk there was that they had huge tech industry concentration that could hurt them if tech completely melts down).
Common banks models optimized to dealing with companies and people who are cash poor who then need loans to bridge whatever they are trying to do. The primary way to asses risk is look at their cashflow the past 2 years.
(Disclaimer: I don’t have loans or deposits in SVB. I did apply for the mortgage with but didn’t take it)
> you put all your companies' money here, far beyond FDIC insurance levels, and don't go anywhere else, and for that we'll get you a nice rate on this unrelated private deal.
that's called fleecing the rubes and scamming the noobs
Honestly, it sounds like an offer that banks should be prohibited from making by banking regulations, not something the counterparty should be punished for accepting.
Maybe, but that's probably not happening, and we already have a mechanism that heavily disincentivizes it: make risky deals that go bad and you only get the money that was insured, but not the risky deal-part.
It's just that we've decided that this time the risk mustn't be carried by those that profited from the deal.
Sounds pretty close to an investment where the investor shouldn't be made whole.