Mortgages, Wine and Renovations: Silicon Valley Bank’s Deep Tech Ties

When Kleiner Perkins, one of Silicon Valley’s highest-profile venture capital firms, wanted to build a bridge between two of its office buildings around 2005, it decided to take out a loan. It turned to Silicon Valley Bank, just 43 feet away on Sand Hill Road in the heart of the venture industry in Menlo Park, Calif.

To make the loan work for Kleiner’s project, which cost more than $500,000, SVB agreed to lend the money against the value of the fees that the venture firm was set to earn from its funds, four people with knowledge of the situation said.

SVB also provided personal banking services to many of Kleiner’s top partners, the people said. That was in addition to the banking services and venture debt that SVB provided to many of Kleiner’s start-ups, as well as mortgages for those companies’ founders. SVB even invested in Kleiner’s funds, two people said.

And when SVB held an annual event in January on the state of the wine industry, it featured speakers from Wine.com, one of the world’s largest online wine retailers and a company that Kleiner had once invested in.

Before SVB failed last week and set off a global financial panic, it was known mostly as a regional, low-profile bank. But within tech’s ecosystem, the bank had molded itself to the quirks and idiosyncrasies of the industry, becoming deeply interwoven to an unusual degree into the lives and businesses of investors, entrepreneurs and executives.

For 40 years, the institution catered to the fact that high-growth, high-risk tech start-ups and their backers do not adhere to normal business practices. These companies put a priority on breakneck growth, shift strategies frequently and celebrate failure as a learning opportunity. They are often worth billions before ever turning a profit, and they can go from silly idea to behemoth at astonishing speed. Most crucially, they rely on a tight network of money, workers, founders and service providers to function.

That unique and often irrational reality required a specialized bank.

“There were a lot of ways in which Silicon Valley Bank was intertwined in the lives of Silicon Valley people that was unique,” said Anat Admati, a professor of finance at Stanford. “The bank had relationships and made relationships with people across Silicon Valley. It was a point of congregation.”

This week, SVB — which was taken over last Friday by the Federal Deposit Insurance Corporation — tried picking up the pieces from its collapse. On Monday, it held a call with investors to tell them that it had reopened for business, even as it was looking for a buyer.

Mark Suster, an investor at Upfront Ventures who was on the call, said he and his firm were both customers of the bank. SVB also co-sponsored a conference that Mr. Suster’s firm recently hosted, and in the aftermath of the implosion, Upfront Ventures endorsed a letter, co-signed by a group of firms, encouraging founders to keep or return 50 percent of their total capital with the bank.

“They understand you will have cash in multiple banks, they would like to be one of them,” Mr. Suster wrote to start-up founders on Twitter.

A spokesman for the F.D.I.C. did not respond to a request for comment.

SVB was best known for courting young, risky start-ups that other banks would not bank with. But its tentacles went far beyond that.

The bank lent cash to many top venture firms, including Andreessen Horowitz. From its own $9.5 billion fund, it invested in start-ups including OpenDoor, a home buying company, and Chainalysis, a cryptocurrency investigation start-up, as well as venture capital funds including Sequoia Capital’s. It incubated some financial technology companies that were building tools for start-up investors. And it schmoozed the tech industry, sponsoring ski trips, conferences, industry newsletters and fancy dinners.

It was all part of the virtuous cycle that makes the tech industry tick, investors and founders said. Any time a start-up wanted a loan, the bank talked to its backers, said Samir Kaji, who worked at SVB in the 1990s and is now chief executive of Allocate, a tech platform for managing venture investments.

“There were constant touch points with the investors,” he said. “Everyone knows each other.”

As Silicon Valley’s start-up industry flourished, SVB expanded its services, helping to manage the outsize wealth the industry produced. That included providing lower-interest-rate mortgages for founders whom other banks wouldn’t lend to. Many entrepreneurs are worth millions on paper but have little cash in their bank accounts.

SVB also branched out to industries adjacent to tech, such as the wineries of Napa and Sonoma Valleys, where many tech founders and executives spend their weekends. Last year, the bank lent $1.2 billion to wine producers.

Gavin Newsom, California’s governor, who praised SVB’s bailout last week, has received loans for three of his wineries from SVB, according to the bank’s website.

SVB’s dominance was well known at Y Combinator, a start-up incubator. Dozens of tech founders who participated in Y Combinator last year were told to open bank accounts at SVB, and they were introduced to SVB bankers at Y Combinator events, said three people who took part in Y Combinator’s 2022 class of tech entrepreneurs over the summer.

One described a cocktail hour mixer in which he was introduced to an SVB banker who could provide a loan to his start-up once he graduated from Y Combinator’s program. Six months later, when he needed a loan to buy his first home, he went to SVB. The bank looked at his company’s valuation, based on the money it had raised in its first round of funding, and spoke to investors of his company. It granted a loan after two other banks turned him down, he said.

SVB’s home loans were significantly better than those from traditional banks, four people who received them said. The loans were $2.5 million to $6 million, with interest rates under 2.6 percent. Other banks had turned them down or, when given quotes for interest rates, offered over 3 percent, the people said.

Drive Capital, a venture firm in Columbus, Ohio, banked with SVB and had lines of credit with the bank that allowed it to wire money to its start-ups faster than asking its own backers to send the money for each individual deal. SVB also invested in Drive Capital’s first fund and in two of its portfolio companies. In total, a third of Drive Capital’s portfolio used SVB’s banking services, which included venture debt, a specialized kind of credit for venture-backed start-ups.

“If you’re a venture capitalist or start-up company, it’s fair to say in some way, shape or form, SVB touched every part of your business,” Chris Olsen, an investor at Drive Capital, said.

Sequoia Capital, a top venture firm that backed Airbnb, Apple and Zoom, always recommended its start-ups to open an account with SVB, Mike Moritz, a Sequoia partner, wrote in a Financial Times opinion piece. Stripe, which is one of the most valuable private tech start-ups and counts Sequoia as its largest shareholder, used SVB for a product that lets international start-ups form companies in the United States, he noted.

Last week, partners at Andreessen Horowitz sent a letter to its investors to assuage concerns about SVB’s collapse, according to a copy of the memo reviewed by The New York Times. About half the firm’s start-ups had banking relationships with SVB, the memo said. The firm also had an outstanding loan of about $16 million from the bank for “tenant improvements,” or renovations to the firm’s offices.

Marc Andreessen, an Andreessen Horowitz founder, called hedge funds and some of the world’s biggest banks to help find a buyer for SVB last week, two people with knowledge of the calls said. Scott Kupor, another Andreessen Horowitz partner, handled panicked portfolio companies and questions from the firm’s investors.

An Andreessen Horowitz spokeswoman declined to comment.

Matt Mireles, a start-up founder, encountered SVB when the bank invited him to its box at the San Francisco Giants’ stadium in 2010. Ten years later, he had a hard time getting a mortgage because his start-up, Oasis, an artificial intelligence company that had raised more than $8 million in funding, was unprofitable. He began to think the only way he could own a home was if he worked for a big tech company.

But SVB looked at Mr. Mireles’s venture funding and list of investors and offered him a reasonable mortgage with a 20 percent down payment.

“That’s one of the things that’s cool about Silicon Valley — the bank and the place,” he said. “These institutions made the entrepreneurial lifestyle — where you might take two or three failures to get to some level of success — they made it viable for people.”

Last week, SVB’s greatest strength — its interconnected community of customers — became a double-edged sword. When venture capitalists began worrying about the bank’s financial solvency, that quickly led to panic across the start-up world.

That Thursday, SVB hosted a dinner at the South by Southwest tech festival in Austin, Texas, serving chargrilled salmon and filet mignon to a group of investors and start-up founders at Perry’s Steakhouse.

As anxiety over the bank’s future rippled through group chats, emails and social media, attendees started referring to the party as “the last supper.”

Jake Chapman, an investor at Marque Ventures who attended the dinner, said he had pulled the host aside to ask about the brewing meltdown and had been rebuffed. “She just said the balance sheet was strong,” he said.

By the next morning, SVB customers had tried transferring $42 billion of deposits from the bank, leading the F.D.I.C. to shut it down.