JPMorgan’s push to replace Silicon Valley Bank for startups

three years ago, JPMorgan Chase executive Doug Petno While he was at a party celebrating a colleague’s retirement in New York, Petno was called by his boss, Jamie Dimon.

It was March 9, 2023, and customers of a West Coast lender known for serving startups were withdrawing deposits in droves.

“Jamie looks at me and says, ‘Join this conversation,'” Petno told CNBC in an exclusive interview this week.

Regulators faced a pressing question: Was JPMorgan interested in buying Silicon Valley Bank?

California’s financial regulators captured The next day, SVB completes the sudden collapse of an institution at the heart of the American startup community. That weekend, Dimon, Petno and other JPMorgan leaders debated repeatedly whether they should buy the bank, which had lost $42 billion in deposits. They decided against it because thousands of SVB customers were already signing up for JPMorgan accounts for safety.

“In one weekend, we had a three-year client,” said Petno, co-chairman of JPMorgan’s commercial and investment bank. “Onboarding teams are opening accounts around the clock.”

Encouraged by what he saw, Petno had an idea: What if JPMorgan could create a real competitor to SVB, as well as Brex, Ramp and the startups? Mercury — had all carved out a profitable niche serving founders and venture capital investors?

“We went to our board and said, ‘there’s a gap in the market,'” Petno told CNBC. “At that moment, everyone saw the opportunity.”

For JPMorgan, Already a giant in Main Street and Wall Street finance, Weiger, gaining a more specialized field of startup banking from his West Coast rivals, is about more than winning deposits. Both are important elements growth strategy For a bank that generated more than $180 billion in revenue last year, it’s also a tool that will help the New York-based lender stay on top of technological advances.

JPMorgan, which has a technology budget of nearly $20 billion this year, aims to not only better serve startup clients and venture capital investors, but also learn from them. The firm is closely monitoring startups in Silicon Valley to find solutions to problems facing the bank, from cybersecurity to quantum computing.

In fact, when a JPMorgan client announces a series of AI-related cuts to business and spending, the firm will typically send a team of bankers to investigate how the client is doing it, Petno said.

Typically, bankers feel that the implementation of new AI agents is only part of the reason for layoffs, with the rest due to other factors such as over-hiring and inefficient processes.

JPMorgan launched its startup banking business in 2016, taking notice of technology-focused rivals during its westward expansion. Initially, it only served larger, more mature ventures.

That’s partly because the bank doesn’t yet have a digital banking solution, which young founders in particular desire, Petno said. There also weren’t enough investment bankers at the time to target smaller, riskier ventures.

For years, the view of some in the VC community about JPMorgan has been that it takes too long to open an account or that resolving payments issues requires dealing with time-consuming visits to a branch, investors told CNBC.

“They want to go to the website to open an account, and if it takes longer than 15 minutes, they’re done,” says Petno.

However, in the weeks following SVB’s collapse, Petno and his team moved quickly to recruit several key players from SVB. then President of SVB Capital John China, who today co-leads JPMorgan’s innovation economics business with Andrew Kresse.

In late April 2023, JPMorgan found itself acquiring another wounded California-based bank. This time, he made the winning bid for First Republic, which also appeals to the tech community.

Thanks to new insights from SVB and First Republic’s banking operations, JPMorgan doubled its revenue from startup banking in 2023, according to the company.

Despite the digital banking focus, a startup founder will still sometimes go to a Chase branch and deposit a large funds check into a regular account. Petno says that when such a situation occurs, JPMorgan’s systems immediately transfer that customer to the startup team.

JPMorgan has quadrupled the total number of clients in the business to about 12,000, served by 550 bankers on both coasts, each drawing resources from different parts of the company, according to the lender.

Founders and VC investors are clients of the private bank; while startups are covered by the commercial bank and VC funds are separate clients in a business largely acquired from First Republic.

While JPMorgan declined to provide specific revenue figures, Petno said the startup business had a “significantly higher” growth rate than the bank’s core businesses.

Petno, however, is not satisfied with the company’s digital banking offerings for startups and describes a project that will help them leave their competitors behind.

In addition to SVB, now owned by First Citizens Bank, and startups Mercury and Ramp, competitors in the space include: Stifel And Customer Bank. In January, Capital One acquired Brex for $5.15 billion.