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There was a disturbance in the startup force last week.
Silicon Valley Bank imploded.
Now the question is ... what bank can you trust?
Silicon Valley Bank is done... Who do you trust?
SVB was the 14th biggest bank in the U.S. and a symbol of the startup community.
If you still don't understand how the $200b bank imploded here's the quick summary:
TLDR: They did a bad job of managing interest rate risk, VCs (like Peter Thiel) encouraged founders to pull their money causing a bank run, and the rest is history.
On Monday, President Biden said all depositors at SVB would be made whole immediately.
Okay, great, now where do you put your money? The last thing you want is an SVB 2.0. Fool me once shame on me, fool me twice... well...
That's why we're here. We saved you hours of research by finding the best startup banking options.
But first, how can you mitigate your banking risk? VC, Christoph Janz wrote a blog post to help us out. Here are a few of his suggestions:
- Don't put all of your money in one bank account.
- Keep most of your cash at a G-SIB - you know, the "too big to fail" banks
- Buy Treasury Bills - 4-week maturity T-Bills can offer small returns while reducing the deposit risk of having your cash at a potentially unstable ban
There are other things to look at too: How high is the FDIC insurance? What return will you receive on cash? Are the fees excessive? Is it built for startups?
We baked all of this into our research and found 3 of the best startup banking services and the safest banks in the world. Check it out:
Mercury was founded in 2017 to serve startups in SaaS, ECom, and Web3 who have raised VC funding in the last 12 months.
Like the other 2 "startup banks" on the list, Mercury isn't actually a bank. They are a front-end application tied to a back-end network of banks.
One cool feature Mercury offers founders is access to their venture debt service, Mercury Raise. The service helps companies looking to extend runway.
Since 2020, Mercury Raise has helped 630+ startups raise $1.7b. They serve international companies (over 180 countries) and claim to be profitable and well-capitalized.
Mercury earns a yield through a Vanguard mutual fund that invests in US Government T-bills through their Treasury product.
FDIC Insured: Savings accounts are FDIC insured to $3m and Treasury accounts are insured up to $500k
Mercury runs their banking services through Choice Financial Group and Evolve Bank & Trust.
Less than 10% of custom deposits are held at any one bank due to their sweep network. A sweep network balances cash flow through a number of banks so there is less concentrated risk and each bank covers the FDIC-insured $250k limit.
Mercury also has an 80-person in-house compliance and risk team.
Fees, transactions, and products: 1% fee on currency exchange.
You have to pay additional fees for mass payments via their API, accessing treasury account management, and sending USD internationally for premium processing.
However, there are no account minimums, overdraft fees, monthly fees, or account opening fees.
Other rewards include a 1.5% cash back on credit cards and “celebrations” for hitting company milestones. Mercury makes money through Mercury Treasury and Mercury Venture Debt.
Capital.xyz offers banking services to startups. They were originally founded in 2021 under the name Party Round before rebranding to Capital.xyz.
Capital specializes in helping startups raise money and automating the entire fundraising process from open to close.
On Capital you can set the details for your round, generate a SAFE, choose fiat or crypto (or both), invite investors, sign all documents, and immediately send or spend funds from your new Capital account.
As of now they only support US-based companies.
How do they make money while giving a 4% interest rate? 2 ways.
- Small fees on debit interchange (the small amount card networks receive for every transaction)
- Capture a small % of revenue on the interest rates of customer deposits
FDIC Insured: $250k
Their bank provider is Blue Ridge Bank. Even though Blue Ridge was established in 1893, their stock was down 15% in the past few days as regional bank stocks across the country take hits following the SVB collapse.
Fees, transactions, and other products: No fees
ACH payments take 1-3 business days and Wire Transfers take up to 2 business days to complete.
You can’t access credit cards through Capital.
Capital is good for early-stage startups (especially crypto startups) who are in the process of growing and want access to automated fundraising services. They also have a sleek mobile app designed for digital natives.
Brex was founded in 2017 as a VR company. They are best known for spend management services and throwing the best happy hours in tech (that’s important for a bank, right?).
Last week, their CEO offered to help startup clients who had money in SVB by lining up $1.5b in loans (they weren't needed after the bailout).
Brex is available in over 100+ countries.
FDIC Insured: $2.25m
Brex funds are kept in multiple FDIC-insured accounts or a money-market fund that must hold 99.5% of its money in securities fully backed by the US government. Funds are diversified across 9 banks, and no funds are held on Brex’s balance sheet.
They don’t use customer deposits to invest since they are not a bank. According to their CEO, they received billions in customer deposits from SVB.
However, one of their partner banks, Fifth Third Bancorp, dropped nearly 25% since Thursday.
Fees, transactions, and other products: No fees
Brex credit card is top in class business card (their competitor Ramp also has a great rewards program and expense management service, but they don't offer the same cash management). Brex rewards include: 8x on rideshare 5x on travel booked via Brex Travel, 4x on restaurants, 3x on eligible Apple purchases through the Brex Rewards Portal, and 3x on recurring software
Brex's mobile app is highly rated and it lets you create financial models, integrate with ERP and HRIS systems, and access venture debt.
G-SIBs or Globally Systemically Important Banks are the safest places to store your cash. Their collapse will quite literally cause a systemic problem to our world economic system. Aka they are too big to fail
Banks on the list include Bank of America, JP Morgan Chase, Wells Fargo, Goldman Sachs, Citi, and many others.
Cons of a G-SIBs:
- Harder to set up an account. Many times you have to go into a physical location.
- Things take longer to get done
- Fee structure is complex
- Aren't built for startups
Pros of a G-SIBs:
- Money should be considered safe
- Full suite of banking products
- Easy to receive loans
- Top security and fraud prevention
Other banks you could try out:
- Holdings. Started by a former Mercury employee last year. Up to $3m FDIC insured and a 3.5% APY. You can get same-day transfers for no fees, but you still need a primary bank for checkings and savings accounts.
- First Republic Bank. There’s a lot of FUD around FRB right now. However, they’ve served small businesses and startups for decades. Their stock recently dropped by 70% in the wake of the Silicon Valley Bank news, so proceed with caution.
- Credit unions (CUs): CUs are community co-operatives that provide local citizens and businesses with basic banking services. They offer no-fee cash management services, low-interest lending, and a network of local business owners in the area. However, they don’t have the payment infrastructure and international payment rails of big banks.
- Revolut: Another neo-bank tailoring to digital natives. Revolut is geared toward personal banking even though they have a business banking unit. Banking services are provided by Metropolitan Commercial Bank, whose stock is down 35%+ in the last few days. They are more expensive than other options on the list and don't offer an APY.
- For crypto startups look into banks like BCB Group, Jewel, Series, and Customer Bank. Make sure you do your own diligence since we haven’t spent time researching these solutions.
*none of these banks are sponsors or partners*
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Best from Social Media
My lead investor just texted me this about SVB.
— Roshan Patel (@roshanpateI)
Mar 10, 2023
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