How banks can attract startups after the SVB collapse

After Silicon Valley Bank’s collapse, tens of billions of dollars’ worth of displaced customer deposits sought a permanent home. Customers flocked to the giant money centers as a sensible short-term move, given their perception as being the safest in a crisis. But banks that can serve SVB’s venture-backed startups’ unique needs stand to gain longer-term.

The banks that win SVB customers and future startups will offer a personalized, startup-focused service model that makes it easy for new clients to onboard and beneficial for them to stay. Here are three ways banks can adapt their offerings to attract and retain startups.

Create a frictionless account onboarding process

Banks often struggle to validate startup applicants’ long-term viability and creditworthiness because they evaluate them with conventional yardsticks like financial statements and debt repayment histories. But startups have fundamentally different business operations, financing and cash flow patterns. Creating an onboarding process tailored to their needs is essential to assess and onboard startups quickly.

Startups’ unique cash flow: Startups typically make large deposits – say, $10 million to $15 million – after an initial venture funding round. But they’re not looking to build a cash stockpile or investment portfolio. Instead, they usually draw down each deposit until the next funding inflow.

Venture capital backing: Startups have a relatively short lifespan – only half exceed the five-year mark. As a result, it can be tough to gauge the viability of a business with a limited history. If a VC vouches for a startup, its word can be a valuable metric for evaluating its growth potential and creditworthiness, either alongside or instead of traditional measures.

Alternative collateral options: A bank may be able to collateralize furniture, kitchen appliances or other physical property when lending to a restaurant. Many startups need brick-and-mortar facilities, so banks can collateralize other assets, like software code or founders’ residences, to secure a loan.

Banks can fast-track the account onboarding process by understanding and anticipating startups’ needs. The new-customer package could also include corporate credit lines and a modest line of credit for incidental expenses. The goal is to offer efficient and personalized service that satisfies the unique needs of venture-backed startups.

Offer ancillary digital services

Many early-stage startup founders cobble together various digital services to manage their businesses. Maybe they use QuickBooks to handle payroll or Excel for their capitalization table management. As a result, they could be shelling out thousands of dollars in vendor fees for services they may need help to integrate with their operations.

This is an opportunity for banks to create more value for startup customers. By offering the right digital ancillary services, banks can craft an ecosystem that allows founders to manage operations and finance in one place. Payroll, cap table management and instant wire transfers are among the potential components of this ecosystem.

The bottom line: By expanding their digital services, banks can build stronger relationships with startups.

Offer preferable rates

Many startup founders stuck with banks like SVB in part because they offered preferable interest rates – and not just on commercial loans. The banks often wooed new customers with low rates for home mortgages and other financial products (see, for instance, an extreme example of one Big Tech founder’s 1.05-percent rate on a 30-year mortgage).

Offering below-market interest rates and other benefits to customers that consolidate their business with your bank can deliver incremental revenue and solid risk-adjusted returns with the proper risk management guardrails. Over time, startup founders may use your bank to deposit their latest financing round. They may also contact your bank to secure a mortgage or use your wealth advisory services.

The benefit isn’t limited to the founders you currently bank. The technology world is a close-knit ecosystem, and the longer founders work with your bank, the more likely they are to refer their friends, mentors and business partners.

The banking sector is still in a precarious position, and there’s plenty of anxiety among customers left behind when SVB and other banks failed. However, banks with suitable service models will differentiate themselves as attractive long-term partners, not just a place for startups to park their cash. These banks also stand to gain customers who are loyal startup community advocates.

Young Pham is chief strategy officer at CI&T.