Introduction
In May 2021, Silicon Valley Bank (SVB) announced that it would lend to a new clientele: early-stage startups.
The promise was simple: over the course of 5 years, issue $5B loans of $1M or less to small businesses in California and Massachusetts. This promise was inked as a condition for the acquisition of Boston Private, a strategic and critical purchase for the bank.
There was just one catch.
Historically, SVB had rarely, if ever, issued loans to this segment of the innovation economy at scale. At a portfolio level, early-stage startups had been considered too risky for the bank to lend to on an institutional basis. Although roughly 25% of SVB’s debt portfolio goes toward tech and life science companies, only 3% goes towards companies with$0-5M in revenue. Moreover, SVB’s lenders and their internal processes were structured to handle complex larger lending deals for more affluent clients with high touch.
In short, the bank’s infrastructure was not prepared to handle the high-volume lower-value debt deals it had signed itself up for.
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User Research
Two primary user groups were identified as critical for the success of a lending transformation.
1️⃣ Clients - The bank clients of early-stage startups typically fall into two categories: founders who wear multiple hats and part-time CFOs who simultaneously manage the finances of multiple startups.
Founders - First and foremost, founders of early-stage companies are busy. They are Swiss army knives who juggle product development, team cheerleading, hiring, fundraising, and sales. They are their own CEO, CFO, CTO, CMO, CPO, and janitor (seriously, founders do a lot). Ergo, the needs of a founder are simplicity and speed.
Part-time CFOs - A part-time CFOs, also known as a fractional CFO, is a Chief Financial Officer who oversees the financial responsibilities of multiple companies. The needs of a part-time CFO are thoroughness and consistency. Because they are overseeing multiple companies at once, they are more attuned to contractual terms and conditions.
2️⃣ Lenders - Lenders are bankers who assemble, approve, and maintain loans for clients. To maintain a system of checks and balances, each life cycle of a loan package is managed by a different type of lender. Credit Solutions is the division of lenders who are the main point guards who handle credit packages and correspond with clients and credit approvers alike.
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💭 “I don’t have time to answer the million diligence questions that a banker sends my way.”
💭 “[The process] asks for the same information in multiple places. It’s redundant”
💭 “I have to give so much information and wait so long just to get a term sheet. Other fintechs offer me terms within hours”
💭 “I’m not a finance wizard. I don’t know every term or condition and I don’t have the capacity to learn it overnight just for this loan”
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💭 "Collecting information is an absolute pain. It’s a million back-and-forth emails”
💭 “Spreading takes a long time because there’s no standard formatting of financials from clients”
💭 “It’s so difficult to track Regulation B (Fair Credit Lending Act) because it’s hard to determine when a credit application is ‘complete’”
💭 “Sometimes I have to ask a client to resend information because they didn’t understand my ask the first time”