Silicon Valley Bank signed exclusive banking deals with some clients, leaving them unable to diversify
A delivery person drops off pizzas at Silicon Valley Banks headquarters in Santa Clara, California on March 10, 2023.
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Silicon Valley Bank had exclusivity clauses with some of its clients, limiting their ability to tap banking services from other institutions, SEC filings show.
The contracts, which made it impossible for those clients to safely diversify where they kept their money, varied in language and scope. CNBC has reviewed six agreements that companies signed with SVB regarding financing or credit solutions. All required the companies to open or maintain bank accounts with SVB and use the firm for all or most of their banking services.
Those arrangements are particularly problematic now that SVB has been seized by federal regulators after last week’s run on the bank. The Federal Deposit Insurance Corporation only insures up to $250,000 in deposits for each client, leaving SVB’s customer base, which is heavily concentrated in tech startups, fearful that millions of dollars in operating funds would be locked up for an indefinite period of time.
Banking regulators devised a plan Sunday to backstop depositors with money at SVB to try and stem a feared panic across the industry after the second-biggest bank failure in U.S. history.
In this photo illustration an Upstart Holdings logo is seen on a smartphone screen.
Pavlo Gonchar | SOPA Images | LightRocket | Getty Images
As part of a multi-million dollar financing agreement with online-lending platform Upstart Holdings, SVB required that the company maintain all of its “operating and other deposit accounts, the Cash Collateral Account and securities/investment accounts” with SVB.
The contract made certain allowances for accounts at other banks, but set strict limits on their size.
“We haven’t had the exclusivity obligation for years and more than 90% of our cash is held at top five US banks,” Upstart said in a statement to CNBC.
Cloud software vendor DocuSign also had an exclusivity contract with SVB, filings show, requiring that the e-signature company keep its “primary” depository, operating, and securities accounts with the bank. That covenant was part of a senior secured credit facility between DocuSign and SVB dated May 2015. DocuSign was allowed to keep existing deposit accounts that were held at Wells Fargo.
Upstart held its IPO in 2020, two years after DocuSign’s debut.
SVB provided a multi-million dollar loan to Sprout Social, which went public in 2019. The bank required that the social media management software company maintain all of its “primary operating and other deposit accounts, the Cash Collateral Account and securities/investment accounts” with SVB.
As with Upstart, SVB set strict limits on the value and type of accounts that Sprout could hold elsewhere.
“Sprout Social does not have any current exclusivity obligations with Silicon Valley Bank. We’re a publicly traded company with a balanced position across multiple financial institutions,” a Sprout spokesperson said in a statement, adding that the company maintained more than $100 million in short-term investments and had more than $80 million in cash.
In another loan and security agreement with Limelight Networks, which became Edgio, SVB required that the company similarly maintain all “operating accounts, depository accounts, and excess cash with Bank and Bank’s Affiliates.”
The contract included an exception for international bank accounts but required that Limelight use only SVB’s business credit cards.
Founded 40 years ago, SVB grew to become the 16th largest U.S. bank by assets and a major venture debt provider, supporting companies in their infancy and providing the type of liquidity that startups couldn’t get from most traditional banks.
SVB didn’t immediately respond to a request for comment.
Dexcom signed a loan and security agreement with SVB, requiring the maker of products for managing diabetes to maintain its accounts at the bank and to transfer cash held elsewhere within 90 days of the contract.
Dexcom’s agreement with SVB also required the company to open a lockbox and maintain the “majority” of the company’s securities accounts with the bank.
“Dexcom does not have material exposure to SVB, nor any exclusive relationship, since the contract referenced expired in 2016,” the company said in a statement to CNBC.
Also within the health-tech market, SVB had an exclusivity contract with Hyperion Therapeutics, a drugmaker that was acquired in 2015 for $1.1 billion by Horizon Pharma.
Hyperion was required to bank only with SVB, but notably did not have to give the firm control over any accounts it used for “payroll, payroll taxes, and other employee wage and benefit payments.”
Representatives from DocuSign, Edgio, and Horizon didn’t immediately respond to requests for comment.
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