S4E5: Startup Banking 101 with Vera Shokina of SVB

Welcome to The Room Podcast. My name is Madison McIlwain and I'm a partner for seed stage investments at DefyVC.

And I'm Claudia Laurie, a co-founder of Pryve. We're a founder and funder who are in the room where it happens. If you're a first-time founder or an emerging venture capitalist, we're glad you found us. We share inspiring, authentic, and insightful stories from founders, funders, and operators who have been in the room and provide tactical feedback on their early aha moments and learnings along the way. Before we dive into this week's episode, we have a short message from our partners.

Support for The Room comes from Silicon Valley Bank.

What's next? What if? Now what?

Silicon Valley Bank understands these questions can keep founders up at night like Claudia. For over 35 years, Silicon Valley Bank has helped high-growth companies through scalable financial solutions, plus insights and expertise that many other banks just can't, which could be why 50% of US-based venture-backed tech and life science companies bank with SVB. Learn more at svb.com/next. Silicon Valley Bank, built for what's next.

Cooley is a global law firm built around startups and venture capital. The firm has been devoted to entrepreneurs and investors, partnering with both to transform breakthrough ideas into successful companies. Cooley works with thousands of entrepreneurs and newly formed companies to ensure that they are structured for growth and long-term success. Since 2005, Cooley has been ranked the number 1 most active law firm. Representing VC-backed companies going public. Learn more about the firm at cooley.com and also at cooleygo.com, Cooley's award-winning free legal resource for startups. Hi, Madison. How's it going? Good.

How are you?

Good. It's been a busy week and I'm excited to take a break and listen to one of our incredible guests and have an awesome conversation with her about a core need to every startup and also every fund, which is their bank.

I know when we were thinking about how do we have these breakout tactical conversations, the legal need really came up firmly because we realized there was a lot of questions to ask there. And this other one of actually needing a corporate bank account came up because this felt like a bit of an aha for both of us, both in starting The Room and for you starting your podcast, that you actually can't have money wired from a VC to your personal bank account or from your sponsors. That was a new learning.

Absolutely. And setting up a corporate bank account is definitely not as easy as a personal bank account. Takes some more time. And there's a lot of complexities like having a business address, having to go in person, which was somewhat tricky as I was setting up my bank account during lockdown, essentially. But I think there are a lot of nuances there that often catch founders off guard. Just a little bit about my experience setting up a bank account for Pryve. We had gotten term sheets. We were realizing that in a couple of weeks, we were going to close on funding. Funding and very much to your point, where does that funding go? And so Alex and I were scratching our heads of, hey, we should set up a bank account. Where can we do it online? And we were researching and getting advice from other people, but ultimately we really needed the account opened. And so we chose our bank and quickly opened it up and then realized there's a lot of paperwork to answer. What is your office address? And it was funny. I remember talking to the banker. I was like, well, we're both working from home. Do we need to provide an office address? And that was definitely a requirement. So, you know, luckily we, we had a coworking space that we could use, but I think a lot of founders might think that they might be able to put the funds into a personal account and use their own funds, but that is definitely not the case.

Vera talks a little bit about this today, and she'll highlight some of those issues in the work-from-home life that we've been living in of actually needing a work address rather than just a home address, which again, Who would've thought?

Just like another thing that is so obvious with your personal funds, but not necessarily as obvious with startup funds, which our banker was like, have you thought about interest rates, savings accounts, investing that work bank account? Yeah, exactly.

What?

And you have to make sure that you get competitive interest rates on your savings account because the money in your corporate bank account, you have a reserve. Of money, oftentimes in the millions, which you should be earning interest on. And that also extends your runway. And a lot of these banks like SVB offer pretty attractive interest rates. And so that's something that I also advise founders to definitely take a look at because it should not just be sitting and decreasing in value as inflation goes up.

Wow. Okay.

Yeah. I would not have thought about that one. I think I've made about a dollar on my personal savings account over the past 10 years. So maybe that would probably be a good amount. Another topic that we're going to touch on today, which has really been top of mind from us on the investor standpoint is venture-backed companies having a deadline that they can pull down in this past year, especially earlier in 2020 when the markets were more rocky and less stable. And there was this big unknown about if you could raise your subsequent rounds of funding that you're planning on, like a Series B. Having access to a deadline that you can pull down, um, just as a safety net to get you through what 6 months ago looked, or even a year ago, looked much more uncertain. It was helpful. And we talk a little bit about that with Vera of when and why a startup would want to have a deadline and how that gets valued and how much money, uh, you will get for that amount. So that was another thing that I was less familiar with before we started our conversation.

And certainly as an early-stage founder, not something that's been top of mind for myself. So I'm very much excited to hear Vera's wisdom on that topic.

Let's dive right in.

Awesome. Thank you so much, Farah, for joining us in the room today.

Thank you. Good to be here, and thank you for having me.

You are a managing director at Silicon Valley Bank, where you cover US banking, early stage, international banking, where you help VC funds and startups with all of their banking needs, really. You have been there for the past 7 and a half years, but almost 11 with SVB in total. Tell us a bit more about your early career and how you ended up in tech banking.

Yeah, I found myself in Silicon Valley as an immigrant. I was working, started my career in Goldman Sachs and GE Capital. And once I realized I'm actually in Silicon Valley and there was a lot of technology innovation happening, I thought, wouldn't it be wonderful to be a part of the technology in Silicon Valley? And Silicon Valley Bank was the only place where I could come and help be part of the ecosystem, help technology companies, venture capital funds.

So exciting. And so many different parts of your story there. I'd love to ask. Where did you move to the States from originally?

I'm originally from Russia, so I moved initially in 1998, and that was in the middle of internet bubble. It was amazing time. I literally landed and got a job at Goldman Sachs within 3 months.

That must have been such an interesting time to join tech banking in the ecosystem out there. It sounds like early on after joining the Silicon Valley ecosystem, you set your sights on one of the, if not the top bank for startups and That is Silicon Valley Bank. SVB is known and helps to bank for many startups, venture capitalists, and technology. Tell us a bit more about how Silicon Valley Bank is uniquely positioned to service the tech ecosystem and how it compares to other retail banks.

Yeah, Silicon Valley Bank is truly, truly unique. It started close to 40 years ago by the leading venture capital firms that wanted to have a bank that understands the needs of technology companies, of venture capitalists, At that time, nobody was interested in early-stage technology companies. Nobody wanted to bank them, not to mention give them lines of credit. So Silicon Valley Bank at that time realized that opportunity. And at that time, the founders of the bank started the bank and we quickly started being super focused on early-stage technology companies and venture capital funds. So I think that was a really smart move by the founders of the bank. The industry grew year over year. Quickly, starting from 40 years ago all the way to now, and continues to grow very fast. And by focusing on the market share and continue to be super focused on the needs of the innovation economy and technology companies, we grew with the industry. And I think that was the key definition of our success.

So you're touching on the fact that banking for a startup or banking for a technology-first company has different needs and requirements than maybe banking for any other type of business. Definitely different than banking for personal use cases. That was something that Claudia and I, when we were starting even The Room podcast, we realized, oh my gosh, we need to have a bank account that's tied to our legal entity of The Room LLC. And Claudia recently started a company herself and also had to set up her own bank account for that. It's just an interesting moment of realization for an individual when you think about having to have more than one type of bank account that goes beyond your own consumer credit. So This might be a little bit obvious, but why is a good banking relationship important for startups?

Yeah, the key is, or at least the key to success of Silicon Valley Bank was that we always were ready to support the companies in their growth. You have seen the unicorns being created in Silicon Valley where the company goes from $0 valuation to $100 million valuation in one year. You need to choose a partner that can scale with you when the company starts growing so fast. It requires product services, support, strong relationship. We're trying to be proactive and anticipate the needs of the technology companies as they grow through this, as they go through this super fast growth. When we talk about general business, if it's a business with a couple of founders, not necessarily venture-backed and not accelerated, this hockey stick growth that Silicon Valley is based about, it's probably not as differentiated. But if you're a fast-growing company, you want to choose a partner who can take you and support you all the way from the incorporation through Series A, through Series B, C, through acquisition, all the way through IPO. SVB has over 300 products specifically targeted to the technology companies, to the needs of venture capital funds and technology companies, and we're structured by the stage of the company and by the sector of the company and geographically as well. And that's super important in terms of anticipating and meeting the, the client's expectations and needs.

Really helpful overview and dovetails into my next question, which was really around how does SVB typically work with founders. But since you slightly answered that, I ask, how do you work with founders, Vera? What does your role look like and how are you engaging with early-stage startups on a daily basis?

It usually starts with the account opening. The company incorporates they need the bank account. As you mentioned, companies are surprised that commercial banking is different from personal banking. There is a lot more regulations. There is more things that banks are expected to do in terms of due diligence and products offering for commercial banks. And most founders, when they just start their first company, they think, okay, just like my personal bank account. For us, it's important to set the companies correctly for future growth and for scale. So when we engage with clients, we try to explain this journey to them, how they can work with Silicon Valley Bank. Silicon Valley Bank and how we can be supportive all the way through the IPO, through various products, services, and relationships. So the Silicon Valley Bank platform is pretty broad for early-stage founders. We will offer the bundle called SBH that pretty much is services for free. And that includes free checking account, free money market account, credit card, SVB Founders Platform, where we try to help companies with introductions, access to our private bank, all this type of stuff. More than anything, we try to become trusted advisors. You mentioned like how I engage. I always try to anticipate the need of the founders and try to figure out how I can be helpful to them every stage of their way. And that differentiates all relationship managers. I think our team is super strong. We love the founders. We truly appreciate what you guys as new founders go through and try to be helpful and try to be trusted advisors, as well as obviously exceeding and meeting expectations on the services side.

You mentioned, and as a founder myself, I didn't truly get this, but when you are looking to start your first business account, it is not like your own personal account. And I think there is a lot of different considerations and complexities there, but oftentimes that's not obvious for a first-time founder. It certainly wasn't for me. Many of our listeners are either founders or aspiring founders. And given that, what are some of your top tips for founders who might have just started the fundraising process? That are looking to establish a banking relationship?

One of the things I would recommend is not to rush with the formal things. We see sometimes companies really being super diligent with the formal steps, right? Incorporation, opening the bank account, and that's all super important, but it's mostly important to really focus on the product. Sometimes we see founders testing the products before they actually incorporate and open bank accounts, figuring out how they work together. Making important decisions about how they're going to build a team, how they're going to set up the culture in the company, all of those things, right? So I think it's super important to think through the product and the culture first with your partner or co-founder. In terms of the operational, financial, legal things, luckily we're all in Silicon Valley and there is a ton of legal expertise, operating expertise. I think it's super smart to go and talk to people, ask for referrals. Explain what each company is trying to do specifically and find the service providers that are a good fit and who understand the ecosystem, who understand the needs of the founders and the future journey, most importantly, the future journey of the founders of the company, and they'll be able to support them along the way. Diligence is super important. Checking referrals is super important. Like I think we all know, service providers are different, whether it's a doctor or a store. Or coffee shop, right? Like you can hit or miss, right? You, you don't want to do this with your banker. So going through the, you know, referrals, channel partners, check on references, I think it's, it's all going to be super important. And I would highly recommend to do this before you set up the relationship.

That's thoughtful perspective because I feel like by the time someone realizes they need a corporate bank account, when they need money wired, and that moment does not lend itself to going slowly. In fact, it lends itself to how quickly can we get this money in the a bank that we don't have. So I love that call out, and I think that's a really helpful piece of advice for founders, that maybe starting a bank account should be something that you do before you talk to investors, which almost feels at odds with the assumption I would have had going into a fundraise process. I don't know if that sounds true.

Yeah, you know, this is a good challenge, and this is a real life story. Like, you always try— when somebody reaches out to you to open the bank account, you literally drop everything and try to be helpful and open this like real time. We know how fast things are happening for founders. Like they get the term sheet, founders doing like a million things at the same time. And one thing that differentiates us is we understand the sense of urgency. We understand that we need to be fast. Your founders working fast, VCs are working super fast. We need to be meeting this timeline and those expectations. Yeah, this is one of the things we're trying to keep alive in our culture. We grew up significantly as a bank already. We're top 20 largest banks in the US right now, but we try to keep this startup founder culture alive in Silicon Valley Bank to make sure we can connect to funders and continue to stay relevant.

Over the past year, especially in COVID, there's been unique need for debt lines for startup founders, particularly through the PPP process and loans. And I know we had to come up to speed as a venture firm on how to advise our founders on thinking about taking PPP loans from the government. As well as pulling down their deadlines that they had in place from day one, but we honestly thought they would never need to use, but COVID really changed that for different people. Could you walk us through the process of getting a deadline from a bank and why or why not a founder would want to do that?

Yeah, for sure. So PPP was a very unique experience. I think that program was rolled out super fast. The banks to a certain extent were in a very similar position as the founders. That we had to put the program together. We tried to go completely electronic. There was so much pressure. Everybody wanted a loan. At the end of, I believe we gave the loans to 95% of our clients who wanted it. And the ones that didn't get it was mostly because they didn't qualify for certain legal operational reasons. But in terms of PPP, it was just very challenging. When we look overall in the universe of debt, Silicon Valley Bank actually pioneered venture debt for the companies that raised venture capital. The idea there is that as the company raises Series A, both founders and the investors are very reliant. They want this money to take them as long as possible in the journey to Series B. To the extent possible, they want to extend this runway to the Series B, and Silicon Valley Bank venture debt, or venture debt, any type of venture debt, serves this purpose. Venture debt usually is given to companies, and they complement equity raised from venture capital. And I'll just walk you through typical scenario, let's say the company is raising Series A, $5 million from a venture capital firm, Silicon Valley Bank or another venture debt provider would come and add $1 million venture debt on top of this. So this $1 million can extend the runway to Series B by 6 to 8 months, depending on the company burn, and that can allow the companies to achieve extra milestone. Maybe they want to launch the sales or they need to get referenceable client, customers, whatever it is, maybe the product is delayed, whatever it is, it's really helpful to get, to have this cushion, this extra 7, 8 months of runway to Series B. The way the bank does it is we know the venture capital firms. We know that if the Series A comes from strong investors, usually founders and investors work together and we have relatively high expectations about the company raising Series B. And a lot of things can change, the team can change, the product can change. The market can change, but one way or another, if in Silicon Valley, and that's why it's super important to say Silicon Valley or some other developed US market, the dynamics are such that founder and VC continue to work together until they either get to the exit or to successful business model and product market fit and continue to build the company.

That is really helpful to shed light on. And as Madison mentioned, as, and as you discussed, the past year has definitely been unlike many others. And so companies are going to have to look at some new and creative ways to continue to fund their runway. I'm sure there's a lot of other kind of unique circumstances that have occurred over the past year, especially with remote work and oftentimes companies now moving or hiring employees from other locations. What are some sticky or complicated situations that startups can get into, especially with regards to remote work and expanding internationally? And a follow-on to that. How does a bank or someone like SVB help solve these problems?

I'll start with the very basic one. When the company opens the bank account, US regulation require the bank to check the addresses. So we'll have to check the address of the founder and we need to confirm it with utility bill or banking statement, and we need to confirm the address of the company. So with the remote work, it's challenging to do both because some of the young founders, they moved with parents, or they moved together, they don't necessarily have current utility bill. It's just challenging. People all moved around and a lot of people started working from home, so they didn't have offices and they didn't have lease agreements to confirm. So this is actually, it was quite a big challenge and we work with founders to explain how we can find a compromise on the confirmed address for the founder himself or herself and for the company. So we definitely take the residences of the parents. It's just, we need to get some additional documents to prove that this is son or daughter of the parents. So we need to figure this out, but we work with this in the world where now it's like automated system. And we also try to have as much account opening process automated. It's just hard to build this into the system. So we try to set up those expectations and explain those challenges, which are very, very basic and very simple and very funny even, right? To founders when we have initial conversations. So it's definitely more challenging as the teams grow with the remote work, we typically relied on in-person diligence when we discuss venture that would always like to have a meeting with founder in person, the same way venture capitalists would rely on meeting in person. So this had to change as we adapted to the new market environment, new expectations. But overall, I think the industry and the bank adjusted really well. Things are working pretty well, even though everybody had to change a little.

You over your time in the Valley have probably seen so many deals and have seen a lot of the different success stories and, you know, pitfalls that founders often face. Remote work is one trend that we've definitely seen this past year, but through your time in the Valley, what trends do you think are going to be in play over the next year based on what you've seen recently?

I'll probably be a little bit controversial in terms of I don't think that people will leave Silicon Valley, and it's not going to be as dominant and as important to the world innovation ecosystem overall. I think the high concentration of capital, of investors, of service providers, of founders, of engineers more than anybody, I think will keep this place pretty relevant to the global innovation economy. And I don't know, it's interesting if you think back 10 years when, like 20 years when Google and Facebook, everybody was trying to make super comfortable offices, free food, lots of perks. So the employees stay as much in the office and be as productive and be as collaborative. I think that need didn't go away. I think people work together better when they are in a shared room, to your point, in a shared room with people where they can collaborate, where they can have a casual idea over lunch that can lead to some, you know, big improvements in certain processes or products. So I think as everything settles down, I personally don't plan to leave Silicon Valley anywhere. I think this is the best place to be if you are part of of the innovation economy. And I think it's super exciting that there'll be a lot more new innovation hubs. I'm sure they will, that the developments just started in Florida and then Nashville and then all other parts of the US or in the world will continue and will provide for growth. But I think it'll only increase the relevance of Silicon Valley as the very best center and the key place for innovation economy.

That's a really good one to have. And As all of us are based in the Bay Area, I think we can affirm we're not going anywhere anytime soon. Vera, I'm just curious, because you've had so much amazing experience working, as Claudia said, with these different types of founders, different stages of founders. What's a question we haven't asked you that you would absolutely want to impart the wisdom upon our first-time founders listening?

I work a lot with companies all over the world, right? As part of the Global Gateway Group, we work a lot with founders around the world. One thing that differentiates founders, successful founders everywhere, from my point of view, is the speed of execution, right? So like the successful companies, I can clearly see a lot of times right on the call, on the first call, the pace that the founder sets. Like he puts pressure on the bank, he puts pressure on his attorneys, he puts pressure on his founders. He expects very fast execution. Obviously that also comes frequently with the experience or with strong vision, but To a certain extent, the pace, the founder's mood, it comes across very quickly in the conversation. And that's actually, for me, is the best predictor. So if I get the sense of urgency from the founder, I'm more inclined to do more introductions, to connect him to other people, to actually like even elevate in general. If I feel this sense of urgency from the founder, I just drop everything and try to be as fast as possible. So I think just, this is such a big part of the culture in Silicon Valley. Everybody is working so much and so hard, and really try to be very proactive and very fast. So to me, the speed of execution is super important. And I don't think many people talk about this, but for me, that's the first differentiator of when we engage with founders. And if I try to predict who is going to be successful, who is not going to be successful, I usually sense it by the way people talk about their plans and how aggressive they are and how quickly they'll start moving through different stages of startup journey.

That's really wise. And I'm totally going to out Claudia because before you hopped on this, Vera, she told me that she was up up till 5 AM working on some of her things she needed to get done for her company. So I have a feeling Claudia is one of those founders. Love that. That is a sign of excellence and high growth. So that spirit of working hard. Well, as we come up on time, Vera, we just want to ask you our closing question. Who is a woman in your life that has had a profound impact on you?

Probably my daughter. I think it's my daughter. She's a junior in mental health. If you're in the Bay Area, you probably familiarize the school. She— I'm just surprised how smart and motivated and confident and focused the current teenagers are. So she has such amazing judgment. She gives me a really great feedback on so many things in life. I realize that I am inspired by the way of her thinking.

Well, we are so excited for your daughter to listen to this episode. I'm sure she's going to be incredibly proud and for many other juniors and girls in high school who are trying to figure out their careers to hear some of the topics that we're chatting about and be inspired by a lot of the role models that they listen to on this podcast. So thank you so much, Vera.

Thank you so much, Claudia and Madison.

Thank you for listening to this episode of The Room Podcast. If you're new here, please subscribe, follow, write us a review, or DM us on social. We'd We'd love to say hi.

We've had some pretty incredible guests over the past 3 seasons, so go check them out. We'll be back next week, Tuesday, 10 AM Eastern, 7 AM Pacific.

See you in the room.

All opinions expressed by Claudia Madison and podcast guests are solely their own opinions and do not reflect the opinion of The5EC. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

This episode of The Room comes from Silicon Valley Bank.

What's next? What if? Now what?

Silicon Valley Bank understands these questions can keep founders up at night like Claudia. For over 35 years, Silicon Valley Bank has helped high-growth companies through scalable financial solutions, plus insights and expertise that many other banks just can't, which could be why 50% of US-based venture-backed tech and life science companies bank with SVB.

SVB.

Learn more at svb.com/next. Silicon Valley Bank, built for what's next.

Cooley is a global law firm built around startups and venture capital. The firm has been devoted to entrepreneurs and investors, partnering with both to transform breakthrough ideas into successful companies. Cooley works with thousands of entrepreneurs and newly formed companies to ensure that they are structured for growth and long-term success. Success. Since 2005, Cooley has been ranked the number one most active law firm representing VC-backed companies going public. Learn more about the firm at cooley.com and also at cooleygo.com, Cooley's award-winning free legal resource for startups.