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 a few of its clients, limiting their ability to tap banking services from other institutions, SEC filings show.
The contracts, which made it inconceivable for those clients to soundly diversify where they kept their money, varied in language and scope. CNBC has reviewed six agreements that firms signed with SVB regarding financing or credit solutions. All required the businesses 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 as much as $250,000 in deposits for every client, leaving SVB’s customer base, which is heavily concentrated in tech startups, fearful that hundreds of thousands of dollars in operating funds can be locked up for an indefinite time frame.
Banking regulators devised a plan Sunday to backstop depositors with money at SVB to attempt to stem a feared panic across the industry after the second-biggest bank failure in U.S. history.
On this photo illustration an Upstart Holdings logo is seen on a smartphone screen.
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As a part of a multi-million dollar financing agreement with online-lending platform Upstart Holdings, SVB required that the corporate maintain all of its “operating and other deposit accounts, the Money 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’ve not had the exclusivity obligation for years and greater than 90% of our money is held at top five US banks,” Upstart said in an announcement 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 a part of a senior secured credit facility between DocuSign and SVB dated May 2015. DocuSign was allowed to maintain 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 Money Collateral Account and securities/investment accounts” with SVB.
As with Upstart, SVB set strict limits on the worth and form of accounts that Sprout could hold elsewhere.
In one other loan and security agreement with Limelight Networks, which became Edgio, SVB required that the corporate similarly maintain all “operating accounts, depository accounts, and excess money with Bank and Bank’s Affiliates.”
The contract included an exception for international bank accounts but required that Limelight use only SVB’s business bank cards.
Founded 40 years ago, SVB grew to change into the sixteenth largest U.S. bank by assets and a significant enterprise debt provider, supporting firms of their infancy and providing the form of liquidity that startups couldn’t get from most traditional banks.
SVB didn’t immediately reply to a request for comment.
Dexcom signed a loan and security agreement with SVB, requiring the maker of products for managing diabetes to keep up its accounts on the bank and to transfer money held elsewhere inside 90 days of the contract.
Dexcom’s agreement with SVB also required the corporate to open a lockbox and maintain the “majority” of the corporate’s securities accounts with the bank.
“Dexcom doesn’t have material exposure to SVB, nor any exclusive relationship, for the reason that contract referenced expired in 2016,” the corporate said in an announcement to CNBC.
Also throughout 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 didn’t have to offer the firm control over any accounts it used for “payroll, payroll taxes, and other worker wage and profit payments.”
Representatives from DocuSign, Sprout Social, Edgio, and Horizon didn’t immediately reply to requests for comment.
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