JPMorgan Aims to Replace Silicon Valley Bank for Startups

Three years ago, a senior executive at JPMorgan Chase was attending a New York City party for a retiring colleague when his boss, Jamie Dimon, called him over. It was March 9, 2023, and customers of a West Coast lender renowned for its focus on startups had been rapidly withdrawing their deposits.

“Jamie looked at me and said, ‘Get on this call,'” the executive, Doug Petno, co-head of JPMorgan’s commercial and investment bank, told CNBC in a recent interview. On the line were regulators with an urgent inquiry: Was JPMorgan interested in acquiring Silicon Valley Bank?

California’s finance regulators seized SVB the following day, marking the abrupt downfall of an institution central to the American startup ecosystem. Over that turbulent weekend, Dimon, Petno, and other JPMorgan leaders deliberated extensively on whether to purchase the bank, which had just seen $42 billion in deposits vanish. Ultimately, they decided against it, partly because thousands of SVB clients were already flocking to JPMorgan, opening new accounts in a rush for perceived safety.

“We had three years’ worth of incoming clients in a weekend,” Petno remarked. “Our onboarding teams were working around the clock to open accounts.”

This surge in new clientele sparked an idea within JPMorgan: Could the firm build a robust competitor to SVB, as well as to other fintech disruptors like Brex, Ramp, and Mercury, all of which had successfully carved out profitable niches serving founders and venture capital investors?

“We went to our board and said, ‘There’s a vacuum in the market,'” Petno explained. “At that very moment, everyone recognized the opportunity.”

For JPMorgan, already a titan in both consumer and institutional finance, capturing the specialized startup banking sector from its West Coast rivals represents more than just an expansion of its deposit base. It is a critical component of the bank’s growth strategy, which targets over $180 billion in annual revenue, and a vital means for the New York-based institution to remain attuned to the rapid advancements in technology.

With a projected technology budget of nearly $20 billion for the current year, JPMorgan is not only aiming to enhance its services for startup clients and VC investors but also to glean insights from them. The firm closely monitors Silicon Valley startups for innovative solutions to challenges it faces internally, ranging from sophisticated cybersecurity threats to the emerging field of quantum computing.

Petno noted that when a JPMorgan client announces significant layoffs or expense reductions related to artificial intelligence initiatives, the bank often dispatches a team of its bankers to understand the underlying reasons. Typically, these investigations reveal that while the adoption of new AI agents plays a role, the primary drivers of these cutbacks are often a consequence of over-hiring and inefficient operational processes, rather than solely AI implementation.

JPMorgan formally entered the startup banking arena in 2016, recognizing the growing influence of its tech-focused competitors during its strategic expansion westward. Initially, its services were limited to larger, more established startups. This was partly due to the bank’s then-nascent digital banking capabilities, which younger founders found less appealing, according to Petno. Furthermore, the firm lacked a sufficient number of investment bankers at the time to adequately target smaller, higher-risk ventures.

For years, some within the venture capital community perceived JPMorgan as being slow to open new accounts and that resolving payment-related issues required time-consuming in-person branch visits. “They want to go to the website to open an account, and if it’s more than 15 minutes, they’re done,” Petno acknowledged.

However, in the weeks following the SVB collapse, Petno and his team acted with remarkable agility. They strategically recruited key personnel from SVB, including its former Capital President, John China, who now spearheads JPMorgan’s innovation economy business alongside Andrew Kresse. By late April 2023, JPMorgan found itself again evaluating the acquisition of another distressed California-based bank. This time, it emerged as the successful bidder for First Republic, an institution also known for serving the technology sector. Leveraging the insights gained from both the SVB crisis and the integration of First Republic’s banking operations, JPMorgan reported a doubling of its revenue from startup banking in 2023.

Despite the increasing emphasis on digital banking solutions, Petno noted that startup founders will still occasionally visit a Chase branch to deposit substantial funding checks into their accounts. In such instances, JPMorgan’s sophisticated systems are now designed to seamlessly transition these clients to the specialized startup team.

JPMorgan has significantly expanded its footprint in the startup banking sector, quadrupling its total client base to nearly 12,000. This expanded client roster is supported by a dedicated team of 550 bankers strategically positioned on both the East and West Coasts, all drawing upon the comprehensive resources of the broader organization. The firm segments its offerings: private banking clients encompass founders and VC investors, while startups are served by the commercial bank. Additionally, VC funds operate as distinct clients, a business largely bolstered by the acquisition of First Republic.

While JPMorgan declined to disclose specific revenue figures for this division, Petno indicated that the startup business has experienced a “dramatically higher” growth rate compared to the bank’s traditional business lines. Despite this impressive growth, Petno expressed an ongoing commitment to enhancing the firm’s digital banking offerings for startups, revealing an ambitious project designed to propel them ahead of competitors.

The competitive landscape in startup banking is robust, featuring entities like Mercury and Ramp, alongside institutions such as Stifel and Customers Bank. Furthermore, established players like Capital One are actively acquiring innovative fintech firms, as evidenced by its $5.15 billion acquisition of Brex in January.

Recognizing that the majority of startups ultimately face failure, JPMorgan strategically identifies companies with high growth potential, aiming to establish relationships with them early in their lifecycle, mirroring SVB’s successful approach. This proactive strategy enables JPMorgan to offer not only essential banking services but also lucrative investment banking advisory services as these companies mature.

JPMorgan’s overarching vision is to become the definitive, end-to-end financial partner for founders, catering to their complete needs, from initial seed funding through initial public offerings and beyond, including international expansion. “Once you’re onboarded, you can never outgrow JPMorgan, from unicorn all the way to a Magnificent 7,” Petno asserted, underscoring the bank’s commitment to long-term client relationships and its capacity to support companies at every stage of their growth trajectory.