Silicon Valley Bank signed exclusive banking deals with some clients

Silicon Valley Bank have exclusivity clauses with some clients, limiting their ability to tap banking services from other institutions, SEC filings show.

The contracts, which make it impossible for clients to safely diversify where they keep their money, vary in language and scope. CNBC has reviewed six agreements the company signed with SVB regarding financing or credit solutions. All require the company to open or maintain a bank account with SVB and to use the company for all or most banking services.

That arrangement is particularly problematic now that SVB has been seized by federal regulators after last week’s run on the bank. The Federal Deposit Insurance Corporation only insures up to $250,000 in deposits for each client, leaving SVB’s customer base, which is heavily concentrated in technology startups, fearing that millions of dollars in operating funds will be locked up for an indefinite period of time.

Banking regulators hatched a plan Sunday to credit depositors with money in SVB to try and prevent a feared panic in the industry after the second-biggest bank failure in US history.

As part of a multi-million dollar financing agreement with an online lending platform Initial ownership, The SVB requires companies to maintain all “operating and other deposit accounts, Cash Guarantee Accounts and securities/investment accounts” with the SVB.

The contract makes certain allowances for accounts in other banks, but sets strict limits on their size.

Cloud software vendors DocuSign also has an exclusivity contract with SVB, the filings show, requiring that the company’s e-signature remains its “main” depository, operation, and securities account with the bank. The agreement is part of a senior secured credit facility between DocuSign and SVB dated May 2015. DocuSign is permitted to maintain a deposit account located at Wells Fargo.

The upstart held its IPO in 2020, two years after DocuSign debuted.

SVB provides multi-million dollar loans to Social Sproutwhich went public in 2019. The bank required the social media management software company to maintain all “main operating and other deposit accounts, Cash Collateral Accounts and securities/investment accounts” with SVB.

As with Upstart, SVB sets strict limits on the value and type of accounts Sprout can hold elsewhere.

In another loan and security agreement with Limelight Networks, which is EddieSVB requires companies to also maintain all “operating accounts, depository accounts, and excess cash with Banks and Bank Affiliates.”

The contract includes an exemption for international bank accounts but requires Limelight to use only SVB business credit cards.

Founded 40 years ago, SVB has grown to become the 16th largest US bank by assets and a major provider of venture debt, supporting companies in their infancy and providing the kind of liquidity that startups can’t get from traditional banks.

SVB did not immediately respond to a request for comment.

Dexcom signed a loan and security agreement with SVB, requiring the manufacturer of products to manage diabetes to maintain an account in the bank and transfer the cash elsewhere within 90 days of the contract.

Dexcom’s agreement with SVB also requires the company to open a lockbox and maintain a “majority” of the company’s securities accounts with the bank.

Also in the health technology market, SVB has an exclusive contract with Hyperion Therapeutics, a drug manufacturer bought in 2015 for $1.1 billion by Horizon Pharma.

Hyperion is required to bank only with SVB, but it is not necessary to provide real control over any account used for “payroll, tax payroll, and employee wages and other benefit payments.”

Representatives from Upstart, DocuSign, Sprout Social, Edgio, Dexcom and Horizon did not immediately respond to requests for comment.

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