A delivery person leaves pizzas at Silicon Valley Bank’s headquarters in Santa Clara, California on March 10, 2023.
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Silicon Valley Bank had exclusivity clauses with some of its customers, limiting their ability to avail banking services from other institutions, SEC filings show.
The contracts, which made it impossible for these clients to safely diversify where they kept their money, varied in language and scope. CNBC has reviewed six agreements that companies signed with SVB regarding financing or credit solutions. All required the companies to open or maintain bank accounts with SVB and use the company for all or most of their banking services.
Those arrangements are especially 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 up to $250,000 in deposits for each customer, leaving SVB’s customer base, which is heavily concentrated in tech startups, fearful that millions of dollars in operating funds would be locked up indefinitely.
Banking supervisors worked out a plan Sunday to back depositors with money at SVB to try to stop a feared panic in the industry after the second largest bank failure in US history.
In this photo illustration, an Upstart Holdings logo is seen on a smartphone screen.
Pavlo Gonchar | SOPA images | LightRocket | Getty Images
As part of a multi-million financing agreement with online lending platform Upstart Holdings, SVB required that the company maintain all of its “operating and other deposit accounts, the Cash Security Account and securities/investment accounts” with SVB.
The contract took some account of accounts in other banks, but set strict limits on their size.
“We have not had the exclusivity obligation for years and more than 90% of our cash is with the five US banks,” Upstart said in a statement to CNBC.
Cloud software provider DocuSign also had an exclusivity agreement at SVB, filings show, which requires the e-signature company to keep its “primary” depository, operating and securities accounts with the bank. That agreement was part of a senior secured credit facility between DocuSign and SVB dated May 2015. DocuSign was allowed to retain existing deposit accounts held at Wells Fargo.
The upstart held his ground IPO 2020, two years after DocuSigns debut.
SVB gave another multi-million dollar loan Sprout Socialwhich was made public in 2019. The bank required the social media management software company to maintain all of its “primary operating and other deposit accounts, Cash Collateral Account and securities/investment accounts” with SVB.
As with Upstart, SVB placed strict limits on the value and type of accounts Sprout could have elsewhere.
In another loan and security agreement with Limelight Networks, which became EdgioSVB required that the company similarly maintain all “operating accounts, custody accounts and excess cash with the Bank and the Bank’s subsidiaries.”
The contract contained an exception for international bank accounts but required Limelight to use only SVB’s corporate credit card.
Founded 40 years ago, SVB has grown to become the 16th largest U.S. bank by assets and a major provider of venture capital loans, backing companies in their infancy and providing the kind of liquidity that startups couldn’t get from most traditional banks.
SVB did not immediately respond to a request for comment.
Dexcom signed a loan and security agreement with SVB, which requires the manufacturer of products to manage diabetes to keep its accounts in the bank and to transfer cash held elsewhere within 90 days of the agreement.
Dexcom’s agreement with SVB also required the company to open a lockbox and keep the “majority” of the company’s securities accounts with the bank.
“Dexcom has no material exposure to SVB, nor an exclusive relationship, as the referenced contract expired in 2016,” the company said in a statement to CNBC.
Even within the health technology market, SVB had an exclusivity agreement with Hyperion Therapeutics, a drugmaker acquired in 2015 for $1.1 billion by Horizon Pharma.
Hyperion was required to bank only with SVB, but in particular did not have to give the company control over any accounts it used for “salaries, payroll taxes and other salary and benefit payments to employees.”
Representatives from DocuSign, Sprout Social, Edgio and Horizon did not immediately respond to requests for comment.
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