JPMorgan doubles down on startup banking by scooping up SVB veterans. Here’s the bank’s plan to take advantage of the venture capital slump.

  • JPMorgan is scooping up Silicon Valley Bank alumni to grow its team dedicated to startups.
  • With a flood of new clients, the unit accelerated its growth plans, doubling its head count to 400.
  • JPMorgan’s Melissa Smith told Insider why the bank is poised to fill the vacuum left by SVB.

The implosion of Silicon Valley Bank in March created a banking void in the startup world.

JPMorgan is working hard to fill it.

So far this year, the Wall Street bank has more than doubled the number of bankers in its commercial-banking unit dedicated to early-stage companies to more than 400. With more than 40 overseas hires, this group, dubbed the innovation economy team, has expanded to Beijing, Frankfurt, London, Stockholm, Sydney, Tel Aviv, and Zurich.

Many of the senior hires came from SVB, including the division’s new cohead, John China, a 27-year veteran based in San Francisco who joined JPMorgan in July. Melissa Smith, who is based in New York and has led the innovation economy business since its inception in 2016, told Insider that her co-leader was hired to foster trust in Silicon Valley.

“It became very clear to us in that March to April timeframe that having a senior West Coast presence that was a known commodity in the VC ecosystem was very important,” Smith, who also oversees the specialized industries group, which includes the innovation-economy unit, said. “We all recognize there is a bit of a void since the events of March, and we have the winning hand to fill that.”

However, this window of opportunity comes at a bad time for startups. According to PitchBook, venture-capital-backed companies in the United States raised 48% less year over year in the second quarter of 2023, and their median valuations have fallen across nearly all stages. Smith, on the other hand, is “cautiously optimistic” about signs of life in the capital markets. She told Insider that now is the time to invest in startups and demonstrate the benefits of working with a large bank.

“I think JPMorgan has often been viewed as the port in the storm,” she stated.

If you can’t beat ’em, poach ’em

The innovation-economy team was formed to attract and retain middle-market startups until they were large enough to require the services of JPMorgan’s investment bank. It is a commercial bank that provides services to small and medium-sized businesses such as credit, financing, treasury and payments, and international banking. JPMorgan declined to disclose the revenue of the unit.

Recruiting SVB employees is a tried-and-true strategy for the innovation-economy team. The group hired four SVB executives in 2019 to work with venture capital funds and their portfolio companies. JPMorgan hired four more alumni two years later.

Smith told Insider that the division was planning to expand before SVB’s demise. However, the collapse accelerated these plans as customers fled to JPMorgan from SVB and First Republic, which JPMorgan now owns. Both banks were well-liked by Bay Area startups and wealthy individuals.

“We had a decent influx of clients coming our way, so we needed to make sure we had the resources in place, whether that be in the US or in other countries, to serve those clients that had come knocking at our door,” she explained.

JPMorgan CEO Jamie Dimon has openly acknowledged the importance of both banks. “We’re building what we call the innovation economy to do a better job, and what First Republic and Silicon Valley Bank did was a big lesson to us, how they cover those clients,” he said at a recent conference about the expansion efforts.

JPMorgan brought back Darya Fuks, an ex-JPMorgan banker who left for software company Wix, to lead a team of 10 former SVB bankers in Tel Aviv in June. First Republic also served emerging venture capital firms, a previously untapped market for JPMorgan’s commercial bank.

Life sciences, healthcare, information technology, climate technology, and e-commerce are all covered by the unit. The goal of developing these verticals and expanding geographically is to show small startups that they won’t get lost in the shuffle at a large bank.

According to Smith, the breakdown of SVB strengthened JPMorgan’s appeal to tech startups that had previously avoided too-big-to-fail banks.

Smith anticipates a slowdown in hiring in the near term, despite JPMorgan’s plans to hire innovation-economy bankers in Beijing.

During a funding crunch, startups’ banking requirements vary.

Customers of the unit have relatively simple needs for accounting and treasury services, but those needs have shifted in this volatile market, according to Smith.

With interest rate increases, startups are concerned about maximizing the yield on unused cash from fundraises, which wasn’t an issue in a zero-interest rate environment, she says.

The funding crunch has provided an opportunity for JPMorgan to promote Capital Connect, a digital platform that allows private companies to find investors and vice versa, which was launched in October. In addition, in March, the bank acquired the fintech Aumni and is integrating its benchmarking term sheet data into Capital Connect.

Bankers are also having difficult conversations with clients who are trying to raise capital but face unappealing valuations.

“I think that’s been a huge focus area, particularly in a constrained capital environment,” she stated, “having that conversation with founders around when is the right time to raise the next round of capital, and helping them kind of digest or get over the hump of a down round or just a valuation that’s not as attractive as they would have seen in 2021.”

Similar Posts

Leave a Reply