Can JPMorgan Chase fill the startup banking void?
JPMorgan Chase is bolstering the unit of the bank that serves startup clients as it looks to fill a void left by several regional lenders that collapsed in March and May.
The New York City-based bank this year added close to 200 bankers to its innovation economy division, an area of the firm that caters to technology startups and venture capital backed-businesses, the bank said. The hiring spree comes as JPMorgan claims the unit’s U.S. client portfolio nearly doubled in 2023.
But as the firm invests in the division’s growth, Ashraf Hebela, head of startup banking at JPMorgan’s commercial banking division, emphasized that the bank has always had a mission to serve startups, even before this year’s banking turmoil.
"This is not a new phenomenon,” said Hebela, who joined JPMorgan from Silicon Valley Bank, which collapsed in March. “JPMorgan has always been in the innovation economy business and not just domestically, but globally. I think the March event put it in more of a focus."
When Silicon Valley Bank collapsed, the startup community lost their favorite bank. The 40-year-old Santa Clara, California-based lender fostered close relationships with the emerging tech sector and was known as the go-to bank for venture capital-backed firms.
But SVB’s implosion, and the subsequent demise of two other startup-friendly regional lenders, meant entrepreneurs were on the hunt for a new bank, and many saw JPMorgan as a safe place to park their funds.
"We have seen an influx of companies come to us in the last two months that are looking for a more stable environment," Melissa Smith, JPMorgan’s co-head of innovation economy and head of specialized industries, told Reuters in May.
During JPMorgan’s investor day in May, Doug Petno, the bank’s CEO of commercial banking, said the market disruption and the “shift in our competitive landscape” substantially heightened the firm’s new client acquisition.
“[T]o accommodate this growth and rebalance the business and to accelerate our innovation economy banking efforts, we're adding incrementally higher front and middle office support than we have in prior years,” he said.
To help it serve a clientele that was the bread and butter of SVB, JPMorgan has brought on some of the firm’s former executives, including John China, who spent 27 years at the regional bank, most recently as president of SVB Capital.
JPMorgan installed China as co-head of innovation economy for commercial banking in July, where he serves alongside Smith.
As JPMorgan looks to capitalize on a gap left over from a string of bank failures, the firm will need to convince startups it has the culture and customer service that endeared so many entrepreneurs to SVB.
Beta Boom Capital Managing Partner Kimmy Paluch, whose firm became a JPMorgan customer after the bank took over failed First Republic Bank in May, said the transition has so far been positive.
“Ultimately, the test as to whether JPMorgan can step in to serve this space will be measured by their actions. As of today, it appears the answer is unequivocally, ‘yes,’” she said. “The legacy First Republic Bank platform has been able to leverage these expanded resources to continue to serve its VC partners, and we've been able to take advantage of these as a firm.”
Hebela said startups and VCs can look at JPMorgan’s 224-year history for examples of the bank’s early commitment to emerging tech.
"You could almost argue JPMorgan has been in the business of banking the innovation economy from what I would consider fintech 1.0, which was Alexander Hamilton,” he said, referencing the treasury secretary who co-founded The Manhattan Company, JPMorgan Chase's earliest predecessor.
The Manhattan Company was chartered by the New York state legislature in 1799 to provide drinking water to the city's population. A provision in the charter allowed the company to use its excess capital for banking operations.
“We've been banking entrepreneurs for the last two centuries,” Hebela said. “I think it's a little bit of an interesting narrative that's out there, that after March, we're all in. When you peel the onion back, you can see the history of what JPMorgan has been doing in the innovation economy. The story starts way before March.”
While JPMorgan Chase CEO Jamie Dimon has touted the bank’s investments in serving the venture ecosystem, he has also acknowledged the $3.87 trillion-asset firm has room for improvement.
“We always were there, we always did OK, but I always wanted to do better,” Dimon told Bloomberg TV this month. “We have unbelievable products and services to bring to them — digital, consumer, subscription lines, financing, globality, research — you name it. But we have to deliver it to them in a way they actually like it and they want it, which is what Silicon Valley Bank did.”
JPMorgan faces competition from incumbents and fintechs that are looking to court the startup sector in the wake of this year's banking crisis.
Fintechs Mercury and Brex, which cater to startups, each reported deposit windfalls as SVB clients moved funds out of the troubled bank.
Meanwhile, Raleigh, North Carolina-based First Citizens Bank, which acquired $110 billion of SVB’s assets at the end of March, is rallying in an effort to fill the lender’s shoes.
“[SVB] was the number-one bank in tech and life sciences for over 30 years and suddenly that went away, so we’ve spent a lot of time trying to give people confidence that we’re in the bank and plan to continue to run the model they were running,” First Citizens President Peter Bristow told the Financial Times in April.
But a key advantage for JPMorgan, Hebela says, is the bank's ability to serve startups throughout their life cycle.
“It's really dangerous to think about a company as just an archetype of a segment. The job for us is to be active listeners and solution-oriented professionals that are providing what they need at the right time, in the way that they need it. That's what we're building,” he said. "When I look at what we have, it is the full gamut, end-to-end of what an entrepreneur would ever need, from idea generation all the way to post IPO.”
JPMorgan’s capital position also puts it at a strategic advantage, especially in light of federal regulators’ proposals for more stringent capital requirements for banks, said Don Butler, a managing director at Thomvest Ventures, which is not a JPMorgan Chase client.
“I believe that if these [proposals] move forward, then you’ll see an increase in the regulatory capital needed for banks that invest in and, to a lesser extent, lend money to startups,” he said. “I believe the outcome of this will be that banks’ commitment to the sector will be tested and that those with both a larger deposit base and a strategic focus on the venture sector will emerge as the larger players here. JPMorgan Chase has both, and so I think in that regard it is well-positioned in the sector."