My Startup Banking Story
As a relatively new member of adult society, and an absolute infant of the business world, I didn't think much about bank choice. I figured: you put money in, you take money out, they're all the same. I also figured a local branch of a global bank is just a fungible tentacle of the giant banking machine, so also... who cares. Both incorrect assumptions, but let's relive and rediscover the effect of these assumptions as I did.
I start my company. I am a 22 year old recent college graduate living in San Francisco and pursuing the startup dream. I file my incorporation paperwork and wait to receive the necessary information for one of the first steps in the life of any new business: opening a bank account.
My filing is processed and I receive my EIN while visiting my parents in a suburb of Los Angeles. I have time to kill during one of the days so I drive down to the nearest Chase bank branch and open a business banking account. We'll call the person who helped me at the local branch Alex (this will be important later). I fund that account with a $20,000 personal loan which was almost all of my savings. I get an account number, an online login, and boom, we're in business!
About 6 months later, I raise a ~$1M seed round. I supply my Chase business banking account information for the wire, and at close the funding is wired to the account. I am sitting in a cafe in downtown San Francisco and I receive a call from an unknown number -- it's Alex, the banker that helped me open my account. He is being very casual, sort of like "Hey, just wanted to check on things." "I noticed a big deposit and wanted to make sure you had everything you needed." etc. For my side, I am mostly confused: why is this person calling me? I mostly say things like "yes yes I'm fine" and end the call quickly. Some wheels have started turning in Southern California, and I just hadn't known it yet.
Someone out there is probably mentally screaming at me "you fool!" at this point. With hindsight, I agree, but I will remind you dear reader that I have only been legally allowed to purchase alcohol for just over a year at this point in my life in the story.
The two years since 2012 -- from a banking perspective -- are quiet. Alex doesn't call me again, and we have no changes in our banking setup. For two years, the company was in heads-down building mode. We had shown significant product traction and were now ready to ramp up hiring to continue building.
At the end of 2014, we raise a $10.2M series A. I once again provide the same Chase business banking account and when the round closes, the funds are wired. Surprise surprise, Alex calls me! I'm starting to realize banks get an alert when there are major changes in account balances. Regardless, I once again brush Alex off -- "everything is good thanks! bye!" -- and continue on with my life.
At this point, I am bewildered that this guy I met at the random local branch to sign some papers is the one calling me, but didn't think much more of it at the time.
Once again, the two years since 2014 are mostly quiet from a banking perspective. Alex called more regularly to "check in" but otherwise nothing has changed. We still bank with Chase. I still have never gone back into a branch. I do everything online.
In the fall of 2016, we raise a $24M series B. I once again provide the same Chase business banking account and when the round closes, the funds are wired. Again, Alex calls. Again, I brush him off. The bank is where I plant money, I don't need anyone calling me. I just want to focus on building the company.
Throughout 2016, we had been building out an executive team for the company. And around the same time of the funding, we hire a Vice President of Finance. As he gets up to speed with our financial footing, he notices we have ~$35M sitting in cash in a Chase bank account. This is obviously not a smart thing to do, so he suggests some financial plans for how to better safeguard and utilize this mountain of cash.
As part of these plans, he suggests moving to Silicon Valley Bank (SVB). They're local to the Bay Area, he's worked with them before, and their bankers understand startups. It'll make accounts receivables, payables, payroll, etc. easier. To me, a bank is a bank is a bank, and if it helps make his job easier, I support his plan.
I log into the Chase online portal and initiate a wire for the full account balance to SVB. I have to pay something like a $30 fee to wire $35M (inconsequential to the story, but amusing nonetheless). Someone calls me for verification -- not Alex -- and the wire processes. Boom, we're done with Chase. Or so I think.
Alex calls me the next day. The day we initiated the wire was his day off. He sounds slightly agitated. I wasn't rude to him, but I was short with him. I switched banks, that's all there is to it. Thanks and goodbye. I never talk to Alex ever again. A bank is a bank is a bank, you put money in, you get money out, I don't understand why I would need to talk to someone.
I once again interrupt this story to appeal to the readers who are screaming at me and thank you for joining me on this story recounting my learning journey. Rest assured, at this point in the story, a professional was now in charge of the company's finances. But the decisions of the years leading up to this would have lingering effects for a few more years...
We now take a brief detour from the company, because this is where my personal life becomes relevant to the story.
For the prior three years, I had been living in Los Angeles. At some point during 2017, I had to go to a local Chase branch to make some changes to my personal accounts. It has been close to a year since the company stopped using Chase.
I visit the closest bank branch to my apartment. This bank branch is 20 miles north of where my parents live -- or the area with the branch where I opened the original company business bank accounts. I'm going to Chase for purely personal reasons, but this information is unfortunately relevant to the story.
At my local branch, I walk up to the teller and provide some handwritten information: my name, account number, desired transaction, etc. The teller looks at the paper, then looks at me, then looks back at the paper, then asks "Are you the HashiCorp guy?" What? HashiCorp is doing well but its not at all something a random non-technical consumer would know about. What is going on?
I say yes and he acknowledges but doesn't automatically offer any more information. I have to know, so I continue "How do you know that?" His response is "Dude, everyone at Chase down here knows about HashiCorp." Huh?
Up to this point, everything in the story is what I know and experienced first hand. What follows however is now second hand information as told by this teller. I haven't verified it, but other employees (at other branches) have said similar things to me over the years.
The teller proceeds to explain that Alex -- the guy I opened my original company account with -- became a fast rising star in the area. He had opened a business account in a small suburb that grew from $20,000 to $35,000,000 in balances in just four years! Despite the business (my business) not engaging in higher-revenue activities with the bank, the opportunity this account represented to the small business wing of the small suburban branch stirred up some excitement. It was just a matter of time.
And then, overnight, the account went to $0. Without talking to anyone, without any prior warning, that account was gone. I used online banking to transfer the entirety of the balance to another bank. The small suburban branch viewed this as a huge loss and Alex came into work with some tough questions and no answers. I instantly recalled feeling that Alex was agitated when he called me the day after the transfer, and I now had an idea of why.
I don't know what happened to Alex, the teller said he was "no longer working in the area" and said it with a noticably negative tone. I don't know what this means and I never found out. Perhaps, he just moved.
Following this event, Chase began an educational series to other local branches in the Los Angeles area explaining that there are these "startups" and how their financial patterns do not match those of a typical business. This series taught branches how to identify startups and how to consider their accounts. The case study they used for this presentation: HashiCorp.
It has been two years since hiring our VP of Finance and our financial department is in really healthy shape. I still have certain approval rights but no longer directly manage the accounts of the company.
Given the recent events with Silicon Valley Bank, I feel it's important to mention that at this point of the company, we had already begun diversifying our balances across multiple banks. SVB will not be mentioned again for the remainder of the story.
I'm working at my office at home in Los Angeles and I receive a phone call from our finance department. That's weird, I rarely receive phone calls. They tell me that during a routine internal audit, they realized there are a few customer accounts that are still paying their bill into the old Chase account.
I never closed that original Chase business account back in 2016. Let me explain how that happens. To close an account, I had to do it in person at any local Chase branch. Startups are busy, the account balance in 2016 was $0, and so I just put it off. Well, a couple years passed, it was still open, and a few customers were actually sending payments to it.
Worse, upon the realization that a few customers were paying into this account, our finance team realized that there was also fraud. For over a year, someone had been wiring thousands of dollars out every few weeks. We were short over $100,000 due to fraud. The finance team immediately called Chase and reported the fraud, locked down the account, and Chase started an investigation.
Meanwhile, the finance team wanted me to close the account and wire the remaining balance to our actual business bank. With the fraud actively being handled by Chase and the finance team, I take on the task of closing the account. I immediately head to the nearest local Chase branch (once again a branch I've never been to before) and explain the situation.
After waiting for 15 minutes, a manager walks up to me. I know this can't be good. The branch manager explains that due to the actions taken to lock down the account for fraud, electronic transfers are unavailable. It doesn't matter that I'm provably the person who opened the account, electronic transfers are "impossible."
I say okay, and ask how I am supposed to close the account and transfer the remaining balance. He said I can close the account and withdraw the remaining balance only in cash. Cash? At this point, I literally asked: "like, green paper money cash?" He says yes. The balance in the account is somewhere around $1M.
I spent another two hours at the bank, juggling between calling our finance department, talking to this branch manager, and calling the Chase business phone line. We determine that instead of literal green cash, I can get a cashier's check. But there is a major problem: the amount the cashier's check is made out for has to be available at that local branch (or, whichever branch issues it). And, well, local branches I guess don't usually have $1M cash lying around. Or, if they do, its not enough to cover other business activities for the day so they're not willing to part with it.
The bank manager gives me the phone number of another branch manager that "may be able to help me." He literally writes down a phone number on a piece of paper. This is all feeling so surreal. I call this number and its for a slightly larger branch a few miles down the road. He says "you're the HashiCorp guy right?" And I roll my eyes. My infamy in the area is still well known.
This manager is very helpful, if not a bit gruff. He explains to me that each local branch has some sort of performance metric based on inflows and outflows at the given branch. Therefore, funding a $1M cash withdrawal was not attractive to them. I'm learning a lot in a really condensed period of time at this point. I don't even know if what he's telling me is true, or legal, all I hear is "this is going to be hard to do if you want it all at once."
But we do want it all at once. And we want to close the account. Now. He is not happy, but he says he'll call me back in 24 to 48 hours. True to his word, he calls me back the next day. He says that he had to coordinate to ensure his branch had the proper funding to satisfy this transaction, and that the funding would be available at a specific date a few days hence. He said I have to do the withdrawal that day because his branch will not hold that amount in cash for any longer.
He also subtly suggested I hire personal security or otherwise deposit those funds somewhere with haste. I believe his exact words were "if you lose that check, I can't help you." Again, this was a one time event, and I don't know how true that all is, but it was said to me.
A few days later, I walk into the branch (I did not hire personal security). I tell the teller my name and there is a flicker of immediate recognition. The teller guides me to a cubicle, the account is successfully closed, I'm issued a $1M cashier's check, and I walk out the door.
My business banking relationship with Chase is, at long last, complete.
I want to make it clear that Chase could've been an excellent banking partner. I never gave them the chance. I never told them what my business does or what I'd use the money for. I never talked to anyone (besides saying what I needed to get off the phone). This story isn't a cautionary tale about Chase, it is rather recounting my naivete as a young, first-time startup founder.
The cashier's check was uneventfully deposited into our primary business banking account shortly after I walked out of the Chase branch.
The fraud investigation took a few months to complete but we were able to recover all of the lost funds.
Enough time has passed and employees cycled that I'm no longer recognized at any Los Angeles area Chase branches.
I look back on these events and there are many places I cringe. At the same time, I can't imagine making different choices because I was acting in good faith at all times with the knowledge I had. I think the choices I made were reasonable for any new founder, and I know many founders who have made similar choices.
Ultimately, there was no long term negative impact of the events that transpired (except maybe for Alex, but I truly don't know) and I can now look back on it with amusement.