Sunday, February 25, 2024

SVB fallout: JPMorgan Chase, US neobanks record maximum new account openings by start-ups

Must read

Where are start-ups moving their funds post the Silicon Valley Bank collapse? Kruze Consulting, a San Francisco-based tax and accounting firm for start-ups, has found that JPMorgan Chase accounted for maximum outflows from SVB over the last few weeks. Almost 50 per cent of SVB-impacted start-ups have opened accounts and moved their funds to America’s largest bank which has $3.2 trillion in assets. 

Meanwhile, start-up-focused neo-banks like Mercury and Brex have been the other top gainers from the SVB meltdown. While Mercury accounted for 20 per cent of new account openings, Brex came in third with 9 per cent. “The second largest winner is Mercury. Probably because of solid UX, good account management, and [a] strong startup-focused brand,” according to Kruze’s findings.

“Another big winner in new account openings from the SVB meltdown is Brex. Founders likely already have a relationship with Brex, so getting a Brex Cash account was super-easy in a time of crisis,” Kruze explained. 

A founder of an Indo-US biotech start-up told Business Today, “Brex transfer to India was quick, easy, and smooth. [Money was] delivered to ICICI Bank within 24 hours. All online… no additional approvals were needed.”

The other gainers from the SVB fallout in terms of new account openings by VC-backed startups include First Republic (6 per cent), Bank of America (3 per cent), Morgan Stanley (2 per cent), Wells Fargo (2 per cent), and others (8 per cent), per Kruze findings. 

“As things started getting scarier and the regional banks’ stock prices started getting hit, it became clear that the only place you’re totally safe is the too-big-to-fail banks. It’s the prisoner’s dilemma everyone has been talking about,” Scott Orn, COO at Kruze Consulting, was recently quoted as saying. 

 

Interestingly, neither of the Big Four US banks — JPMorgan, BoFA, Citibank, and Wells Fargo — have shared any official information on the cash inflows into their coffers, post the SVB fallout. However, several founders and VCs have posted on social media and across WhatsApp groups about moving their deposits to large banks. Some are even maintaining a mix of banks and accounts. 

“So far, the plan is to keep some cash under $250,000 [the FDIC insured limit] in SVB for winding down stuff from there, use Chase as the main operating account, and use Mercury as the venture fund and credit card account,” shared a Valley-based Indian founder. 

Closer home, meanwhile, the IT Ministry estimates that over $250 million worth of SVB deposits flowed into GIFT City branches of Indian banks (like ICICI, Kotak and others), within Week 1 of the crisis. Overall, Indian start-ups are estimated to have had $1 billion-plus worth of funds stuck at SVB when it went down.

But account openings in GIFT City branches remain a challenge. “We have struggled to transfer from Mercury to ICICI and Kotak branches in GIFT City. It asks for IFSC code, but none of these banks have IFSC codes,” one founder shared in a WhatsApp group.

The CFO of a vertical SaaS startup clarified, saying, “ICICI Bank provided us with an IFSC code of an alternate branch. As for GIFT city transfers, SWIFT and account number are important, and the transaction went through.”

Several affected founders are also discovering other, smaller fintechs as well. “If you’re looking for another bank, check out Levro. They are a newish fintech start-up, but they are insured up to $250,000 and allow you to hold multiple currencies (up to 200+ countries), and each account has its own International Bank Account Number (IBAN),” the founder of a DC-based healthtech start-up revealed. “You can open an account with them as long as you have a US entity, and they are super-fast,” she added. 

What’s amply clear from the SVB crisis is the need for diversification and risk management early on. And startups have learnt the lessons. 

Also read: Multibagger steel stock rises nine times in three years; buy sell or hold?

Also read: SBI expects RBI to pause repo rate in April policy; continue withdrawal of accommodation

Latest article