Startup Banking 101: RJ Metrics, DuckDuckGo use Silicon Valley Bank

In the early days of a startup it’s like pick-up hoops, dodgeball or any other playground game: picking teams is a big deal. You want strength and experience on your side.

When you don’t have profits, audits or much history, how do you approach a bank? What can you expect? If you have a non-traditional business model, will a bank be able to help you? That’s the specialty for Silicon Valley Bank, with more than two dozen offices around the country and a focus on early-stage technology companies and roots in Philadelphia.

As a bank that has been helping innovation startups increase their probability of success for 30 years,  we have learned some things along the way that may help you pick the best team and set you up to win:

1. Every company needs a bank. Ask Curalate, RJMetrics and DuckDuckGo — all Philly startup highlights that work with Silicon Valley Bank. Early-stage tech companies should make sure they are working with a bank that allows thinly-staffed teams to make necessary banking transactions in the office, or on the go.  It is also helpful to have experienced relationship managers who provide advice and products (i.e. Business Credit Cards) to help you get where you are trying to go…faster.  No two startups are alike and you shouldn’t be treated like everyone else.

2. Networking, at all phases in a company’s lifecycle, stimulates opportunity.  When it comes to selecting partners, whether it is legal, accounting, insurance or banking, choose them wisely and with the end goal in mind.  You never know when the experiences and connections of these partners will add value.

3. Making Uncle Sam happy.  Private companies of all sizes are required by the IRS (Section 409a) to establish that stock options are issued at no less than fair market value to avoid tax penalties. Companies considering or currently issuing stock options should follow the lead of Shunra Software and Relay — yup, also local and also SVB clients — and consider independent 409a valuation opinions at least every 12 months.  Choose a partner with relevant data points to help make this necessary process both time-efficient and cost-effective.e

4. Extending the runway. For venture-backed companies looking to extend cash runway to achieve a valuation-driving event, venture debt can be a useful financial tool. Through a three to a four year term loan, venture debt’s goal is to provide a non-dilutive source of capital as a complement to equity for high-growth companies. When you seek to raise more equity or sell your venture, you have achieved more, increasing your value. Vicept Therapeutics, the healthcare IT firm and a SVB client, utilized venture debt to help extend its runway while simultaneously running clinical trials and negotiating the eventual successful sales of the company to Allergan in 2011.

5. Working Capital working for you.  If you have revenues (every company’s goal someday), you have an operating cycle with working capital gaps that a line of credit could fill. Through a standard accounts receivables-based line of credit, asset-based, factoring, recurring revenue or SaaS lines of credit, flexible financing solutions are available. A line of credit can help manage cash flows through cyclicality and seasonality, growing pains or can just help the small guy deal with extended payment terms from your more-established customer base.

6. Cash is King. Fortunate enough to have significant cash runway? With VCs taking enough risks in their portfolio companies (no offense), they are not looking to risk that capital investing in the market. A finance team should be concerned about two things (a) Capital Preservation and (b) Liquidity. Chasing yield should be a distant third goal. The right financial partner will also help you construct an Investment Policy to ensure your funds are safe and liquid. Investors love that stuff.

7. Going Global? Startups today go global sooner than most companies. Even though it might not be in your one to three year plan, it is likely in your three to five year goals. Choosing partners today that can help with that complicated process will help avoid potential costly mistakes. Selecting a banking partner that can help with cross-border transactions, hedging strategies, international letters of credit, or the simple tasks of collecting receivables or paying payables abroad, will bode well for that 3-5 year plan.

If you’re launching a venture, start with a bank that understands early-stage tech startups and knows where you’re going. Some of the most celebrated local examples of young technology businesses on the move have chosen Silicon Valley Bank.

Meet the Philadelphia Team at Silicon Valley Bank, which is proud to have worked with thousands of great entrepreneurs for 30 years.

• Tom Gordon, Managing Director (tgordon@svb.com / 610.293.7805)
• Denny Boyle, Vice President (dboyle@svb.com / 610.293.7802)
• Richard White, Vice President ( rwhite@svb.com / 610.293.7804)
• Mark Shimrock, Associate (mshimrock@svb.com / 610.293.7806)