JPMorgan’s efforts to replace Silicon Valley Bank for startups

Three years ago, JPMorgan Chase Manager Doug Petno was at a party in New York to celebrate a colleague’s retirement when his boss, Jamie Dimon, called Petno.

It was March 9, 2023, and customers of a West Coast lender known for its services to startups were withdrawing their deposits in droves.

“Jamie looks at me and says, ‘Answer this call,'” Petno told CNBC this week in an exclusive interview.

Regulators were in line with a pressing question: Was JPMorgan interested in buying Silicon Valley Bank?

California financial regulators seized SVB the next day, completing the sudden collapse of an institution at the heart of America’s startup community. Over the weekend, Dimon, Petno and other JPMorgan executives repeatedly debated whether to buy the bank, which had just lost $42 billion in deposits. They decided not to do so, in part because thousands of SVB clients were opening accounts at JPMorgan anyway, in a flight to safety.

“We received three years’ worth of clients in one weekend,” said Petno, co-head of JPMorgan’s commercial and investment banking business. “Integration teams were opening accounts 24 hours a day.”

Emboldened by what they saw, Petno had an idea: What if JPMorgan could create a real competitor to SVB—along with startups Brex, Ramp, and Mercury—all of which had carved out profitable niches serving founders and venture capitalists?

“We went to our board and said, ‘There’s a gap in the market,'” Petno told CNBC. “At that moment, everyone saw the opportunity.”

For JPMorgan, already a financial giant on Main Street and Wall Street, conquering the more specific niche of startup banking against its West Coast rivals is not limited to winning deposits. It’s both a key part of the growth strategy for a bank with revenue of more than $180 billion last year, and also a way to help the New York-based lender stay close to technology developments for itself.

JPMorgan, with a technology budget of nearly $20 billion this year, aims not only to better serve startups and venture capitalists, but also to learn from them. The company is closely monitoring Silicon Valley startups to find solutions to problems the bank itself faces, from cybersecurity to quantum computing.

In fact, when a JPMorgan client announces a series of job cuts and AI-related spending, the company often sends a team of bankers to investigate how the client is doing it, Petno said.

Typically, bankers believe that the implementation of new AI agents is only a fraction of the reasons for layoffs, while other factors such as over-recruitment and inefficient processes account for the rest, he said.

JPMorgan launched its startup banking business in 2016, after becoming aware of its technology-focused competitors during its westward expansion. At first, it only served larger, more mature startups.

Part of the reason was that the bank didn’t yet have a digital banking solution that young founders in particular dreamed of, Petno said. It also didn’t have enough investment bankers at the time to target smaller, riskier startups.

For years, some in the venture community felt that opening an account took too long or that resolving payment issues involved tedious visits to a branch, investors told CNBC.

“They want to go to the website to open an account, and if it takes more than 15 minutes, it’s over,” Petno says.

But in the weeks following SVB’s collapse, Petno and his team moved quickly, hiring a few key players from SVB, including John China, then chairman of SVB Capital, who today runs JPMorgan’s innovation economics business alongside Andrew Kresse.

In late April 2023, JPMorgan found itself considering buying another troubled California bank. This time it was the winning bid for the First Republic, which was also aimed at the technological community.

With new learnings from SVB and First Republic Banking, JPMorgan doubled its revenue from startup banking in 2023, according to the company.

Despite the focus on digital banking, a startup founder still sometimes visits a Chase branch to deposit a huge funding check into a regular account. Now, when that happens, JPMorgan’s systems immediately escalate that client to the startup team, Petno says.

JPMorgan has now quadrupled its total number of clients in the sector to nearly 12,000, served by 550 bankers on both coasts, according to the lender, all of whom draw their resources from different parts of the business.

Founders and venture capitalists are clients of the private bank, while startups are covered by the commercial bank and venture capital funds are separate clients in a business largely acquired from the First Republic.

While JPMorgan declined to give specific revenue figures, Petno said the startup business had a “significantly higher” growth rate than the bank’s core business lines.

And yet, Petno is still not satisfied with the company’s digital banking offerings for startups, describing an ongoing project that will help them get ahead of their competitors.

Besides SVB, which is now owned by First Citizens Bank, and startups Mercury and Ramp, competitors in this space include Stifel And Customer bank. In January, Capital One acquired Brex for $5.15 billion.

Since most startups fail, JPMorgan identifies companies it expects will win their bets, seeking to develop relationships with them earlier in their lifecycle, as SVB did.

This way, it can provide not only basic bank accounts but also lucrative investment banking advice along the way.

JPMorgan’s ultimate vision is to become the one-stop shop for founders, serving all their needs, including international expansion, from seed round to IPO and beyond.

“Once you get in, you can never get past JPMorgan, from unicorn to Magnificent 7,” Petno said.