Wasabi CFO On Doing Business With SVB: What Worked, What Didn’t And What’s Ahead
Joseph F. Kovar
“If you’re asking why would companies bank with them, tech companies have a unique profile that is not necessarily consistent with the way that conventional banks look at target companies. Tech companies, in particular venture-backed tech companies, burn money. They are all about growing really, really quickly. And so many of the traditional banks will look at a profile like that and say, ‘Too risky for me. I don’t know you. I don’t want to be with a company that is burning money,’” says Wasabi CFO Michael Bayer.
Silicon Valley Bank: The Right Bank, But Wasabi Ready To Move On
The surprise demise of Silicon Valley Bank (SVB) has left much of the tech startup business concerned. Santa Clara, Calif.based SVB, which since its founding 39 years ago grew to become the 16th largest bank in the U.S., on March 10 failed after a run on its deposits as its customers grew worried about the recent series of interest rate hikes by the U.S. Federal Reserve. It was the U.S.’ second-largest bank failure ever.
Those clients primarily were tech startups that depended on SVB for loans, virtual currency business and financing acquisitions. According to Axios, 56 percent of its loans as of late 2022 went to venture capital and private equity firms secured by those companies’ partner commitments, 14 percent of its loans were in the form of mortgages to wealthy individuals and some other clients, and 24 percent went to various tech and health-care companies. SVB also claimed that nearly half of all U.S. venture-backed tech and health-care startups worked with the bank.
SVB deposits were insured by the Federal Deposit Insurance Corp. However, the failure of SVB led to worries by its clients, many of whom kept millions of dollars of their cash with the bank despite the fact that FDIC accounts were insured for a maximum of $250,000. Fortunately for those companies, the U.S. government stepped in to ensure that customers could access all their cash.
[Related: Major IT Companies That Did Business With SVB]
One of those SVB companies was Boston-based cloud storage technology developer Wasabi, which had banked with SVB for years. Wasabi CFO Michael Bayer, in an exclusive interview with CRN a few days after the U.S. government unveiled plans to help SVB’s customers, said SVB was a great bank to companies like Wasabi for years, and that his company used SVB for customer payments.
The choice to work with SVB was an easy one for startups, Bayer told CRN.
“Tech companies have a unique profile that is not necessarily consistent with the way that conventional banks look at target companies,” he said. “Tech companies, in particular venture-backed tech companies, burn money. They are all about growing really, really quickly. And so many of the traditional banks will look at a profile like that and say, ‘Too risky for me. I don’t know you. I don’t want to be with a company that is burning money.’ And traditional banks are very good at lending you money you don’t need.”
Wasabi was fortunate in that it was already making plans to take advantage of larger, more established banks that could provide the kinds of services the company had matured into, Bayer said.
“We were already looking for services that went beyond what SVB could provide,” he said. “We’re a global organization. We need support to do transactions in all of the different countries we’re in. We’re in the U.S., or Canada, or we’re in several countries in Europe, we’re in Singapore, we’re in Australia, we’re in Japan, we’re moving into other countries. We have a development center in Kosovo. We need a bigger footprint, and no matter before all of this happened in SVB, they just don’t have the operational support for it.”
Here is what Bayer had to say about being part of the SVB community for years and then going through the worry of what might happen to deposits.