Banking upheaval presents opportunity

The failures of both Silicon Valley Bank and Signature Bank earlier this month mean venture investors and startups in Indiana and elsewhere are rethinking how and where they bank—and that is creating a business opportunity for other financial institutions.

Santa Clara, California-based Silicon Valley Bank failed March 10, and New York City-based Signature Bank failed March 12. In both cases, the Federal Deposit Insurance Corp. took over the banks’ assets and marketed them to other banks.

The bank failures created great turmoil in the banking system, causing several other banks to wobble since then. Silicon Valley Bank’s failure in particular sent shock waves nationwide because it catered to venture-backed tech and biotech companies, including some in Indiana.

Among those customers is local investment firm Allos Ventures, which has offices in both Carmel and Cincinnati and invests in Midwest-based tech firms.

Some of Allos’ portfolio companies also banked with Silicon Valley Bank and Signature Bank, said Allos Managing Director David Kerr.

Silicon Valley Bank is one of a number of financial institutions that Allos does business with, Kerr said. Since SVB’s collapse, Kerr said he’s had conversations with other banks about potentially moving more, or all, of the firm’s business away from SVB.

One complicating factor, Kerr said, is that those other banks don’t have the same level of expertise as SVB and Signature in dealing with venture-backed companies.

“In talking with some of the large traditional banks this week, you see a stark difference in the way they understand the market,” Kerr said March 17.

Kerr said Allos is still considering what it will do and will likely make a decision within the next few weeks.

Indianapolis-based startup Holder is another local SVB customer that’s weighing its options. The company, which launched out of Indianapolis-based venture studio High Alpha last year, offers a marketing and customer-relationship platform.

Holder’s co-founder and CEO, Drew Beechler, said his firm is still doing business with SVB for the moment. “We have opened a handful of other accounts with new banking partners but have not made a final decision yet on our long-term plan,” Beechler said via email.

“Most companies, including Holder, have an incredible amount of financial infrastructure, operations and processes tied into their banking partner, which makes it a challenge to completely shift to a new partner overnight,” Beechler wrote.

In the meantime, the situation is creating opportunity for some other banks.

Beechler and leaders at several other local tech firms said last week they had already received numerous queries from bankers courting their business.

“We have gotten a lot of pitches from a number of different people,” Shaker Inc. co-founder and CEO Chris Lucas said via email. “I think everyone is trying to capitalize on the uncertainty.”

Shaker is a SVB customer, Lucas said, but likely not for much longer. When SVB ran into trouble, Lucas said, Shaker opened a new account with Nashville, Tennessee-based Studio Bank. “We still have some of our deposits in SVB but will probably move the majority over to Studio,” Lucas said.

Shaker, which launched out of Indianapolis-based venture studio High Alpha in 2020, offers a collaborative platform for real estate teams, agents and their clients.

Pat East, executive director at The Mill coworking and entrepreneurship center in Bloomington, said he’d fielded a few questions last week from people seeking his advice about banking-related topics.

“Most of our founders, as far as we can tell, don’t have any ties to Silicon Valley Bank or Signature Bank,” East said.

His advice to founders and investors: “Don’t panic but also take reasonable precautions.”

Those precautions might include using more than one financial institution. If a startup raises $5 million in venture funding, for instance, it should think about using multiple banks, East said.

FDIC insurance protects deposits of up to $250,000 per bank, per depositor. That means that if an account holder has more than $250,000 in deposits in one bank, the excess funds are not FDIC-insured in the event the bank fails.

In the case of SVB and Signature Bank, the FDIC decided to make all depositors whole—but many depositors had a tense couple of days before the FDIC made that announcement.

According to S&P Global Market Intelligence, 93.8% of SVB’s deposits were uninsured—the highest percentage of any of the U.S. banks with more than $50 billion in assets. Signature Bank ranked fourth, with 89.3% of its deposits uninsured.

Seeing opportunities

As companies and their investors consider their banking options, financial institutions see a chance to pick up some new business.

The turmoil caused by SVB and Signature’s collapses has been stressful, but “we’ve always said, where there is chaos there’s opportunity,” said Nicole Lorch, president and chief operating officer at Fishers-based First Internet Bank.

“I do think this is a great moment for us to be talking with small businesses and individuals alike,” Lorch said.

Within a week of SVB’s collapse First Internet had opened “dozens” of new accounts for local tech firms, Lorch said.

Last week the bank issued a news release touting its participation in a reciprocal deposits service. Customers who use the service can opt to have their deposits spread between First Internet and numerous other participating banks, with no one bank holding more than $250,000 of the customer’s money. It’s a way for First Internet customers to assure their deposits are FDIC-insured even if they have millions in the bank.

The bank publicized the existing service after getting customer queries about FDIC insurance, Lorch said.

Kansas City-based Novel Capital is also seeing the upside of the current market upheaval.

Founded in 2020, Novel provides growth capital to business-to-business companies with subscription-based revenue, including software-as-a-service firms. Novel has provided funding for more than 75 companies to date, with a focus on those based in the middle part of the U.S. The firm does have some Indiana customers, said CEO Carlos Antequera.

In the first week after SVB’s failure, “we’ve just had an influx of entrepreneurs connecting with us in all kinds of ways,” Antequera said. “A lot of folks counted on Silicon Valley Bank not only for their deposits, but also venture debt and lines of credit.”

Novel provides customers with nondilutive capital—essentially, loans with repayment terms between three and 36 months.

In that first week, Antequera said, the number of potential customers Novel spoke with—and the amount of capital it provided—were about four times the firm’s usual volume.

It’s too early to say whether the business bump is temporary or whether Novel can sustain the growth once the short-term turbulence in the market subsides, Antequera said.

But he’s hopeful. “We’re definitely very optimistic about being able to work with more customers.”•

Clarification: The original version of this story failed to identify First Internet Bank President and Chief Operating Officer Nicole Lorch’s full job title.