JPMorgan’s push to replace Silicon Valley bank for startups

three years ago, JPMorgan Chase CEO Doug Pitno was at a party in New York City celebrating his colleague’s retirement when his boss Jamie Dimon called Pitno.

It was March 9, 2023, and clients of a West Coast lender known for catering to startups were withdrawing deposits in droves.

“Jimmy looks at me and says, ‘Get this call,'” Pitno told CNBC this week in an exclusive interview.

The organizers had a pressing question on the phone: Was JPMorgan interested in buying Silicon Valley Bank?

California financial regulators seized SVB the next day, completing the abrupt collapse of an institution at the heart of the American startup community. Over that weekend, Dimon, Pitno and other JPMorgan leaders repeatedly wondered whether they should buy the bank, which had just lost $42 billion in deposits. They decided not to, in part because thousands of SVB clients were signing up for JPMorgan accounts, anyway, in a flight to safety.

“We’ve had new clients for three years on the weekends,” said Pitno, who is co-head of JPMorgan’s commercial and investment bank. “Preparation teams were opening accounts around the clock.”

Encouraged by what they saw, Pitno had an idea: What if JPMorgan could build a real competitor to SVB — as well as startups BRICS, RAM, and Mercury — all of which have built a lucrative niche serving founders and VC investors?

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

For JPMorgan, already a finance giant on Main Street and Wall Street, winning a more defined niche in emerging banking than its West Coast rivals is about more than just getting deposits. It’s a key component of the growth strategy for the bank, which had revenues of more than $180 billion last year, and also a way to help the New York-based lender stay close to technological developments for itself.

JPMorgan, which has a technology budget of nearly $20 billion this year, aims not only to better serve its startup clients and venture capital investors, but to learn from them. The company is closely monitoring Silicon Valley startups for solutions to problems the bank itself faces, from cybersecurity to quantum computing.

In fact, when a JPMorgan client announces a round of AI-related cuts in jobs and expenses, the company often sends a team of bankers to investigate how the client did it, Pitno said.

Typically, bankers find that the use of new AI agents is only a small part of the reason for layoffs, while other factors such as over-hiring and inefficient processes account for the rest, he said.

JPMorgan started its startup banking business in 2016, becoming aware of its technology-focused rivals as it expanded west. Initially, it only served larger, more mature startups.

This was partly because the bank did not yet have a digital banking solution that younger founders in particular craved, Pitno said. It also did not have enough investment bankers at the time to target smaller, riskier startups.

For years, the view of JPMorgan from some in the venture capital community has been that opening an account takes too long, or that resolving problems with payments involves dealing with time-consuming 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, they’re done,” Pitno says.

But in the weeks following SVB’s collapse, Pitno and his team moved quickly, hiring a few key players from SVB, including then-SVB Capital head John China, who today leads JPMorgan’s innovation economy business alongside Andrew Kreis.

By late April of 2023, JPMorgan found itself looking to buy another stricken California bank. This time, it made the winning bid for First Republic, which also caters to the tech community.

Thanks to new lessons from SVB and First Republic’s banking operations, JPMorgan doubled its startup banking revenue in 2023, according to the company.

Despite the focus on digital banking, the startup founder still occasionally walks into a Chase branch to deposit a huge funding check into a regular account. Now, when that happens, JPMorgan’s systems immediately move that customer to the startup team, Pitno says.

JPMorgan has now quadrupled its client count to nearly 12,000, served by 550 bankers on both coasts, according to the lender, all drawing resources from different parts of the company.

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

While JPMorgan declined to provide specific revenue figures, Pitno said the emerging business had a “significantly higher” growth rate than the bank’s main lines of business.

However, Bitno remains unsatisfied with the company’s digital banking offerings for startups, describing a project in the works that will help them leapfrog competitors.

Besides SVB, now owned by First Citizens Bank, and startups Mercury and Ramp, competitors in the 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 to be winners and seeks to develop relationships with them early in their life cycle, as SVB did.

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

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

“Once you join, you can never outdo JPMorgan, from the unicorn all the way to the Magnificent 7,” Pitno said.