Startup banking service Mercury moves into debt lending to take on Silicon Valley Bank – TechCrunch
Mercury, a three-year-old, well-funded startup that offers a host of startup banking services, is now rolling out a new offering for its clients: venture capital debt.
The idea is to lend $200 million this year and up to $1 billion next year to startups that have already raised $2 million in funding from at least one institutional investor. The product is reserved for early-stage startups, with Mercury offering between 25% and 50% of a startup’s seed round in debt.
The move puts the 250-person San Francisco-based company – which says it already has 60,000 businesses on its platform – on a collision course with Silicon Valley Bank (SVB). Mercury co-founder and CEO Immad Akhund says that’s the idea, too.
Like many fintech startups, Mercury — which isn’t a bank itself but a banking platform that offers FDIC-insured products through an Arkansas-based bank called Evolve Bank & Trust — says more Big rivals like SVB are cumbersome and don’t understand the changing expectations of its customers.
“These banks have simply never had to create a product, so the idea of going to a website, filling out a form and logging into QuickBooks is not something a bank would normally think of” , says Akhund. “It seems obvious as a product entrepreneur, but that’s how these experiences are built in banks. Everything still happens via e-mail and PDF. There’s a ton of back and forth calls, lots of excel spreadsheets.
While a growing number of startups have begun to secure their debt while raising a cycle or soon after to expand their runway – SVB says that 63% of US companies that went public in the first half of the year last were customers – Mercury’s advantage over SVB is that it’s a “product-driven” startup, says Akhund.
Akhund says he’s familiar with the pain points of startups, having co-founded two earlier companies, including Heyzap, a mobile ad network acquired in 2016. Indeed, it’s because of that first-hand experience, as well as his work with some of them. the hundreds of other startups he says he wrote angel investor checks to over the years Mercury was founded.
Its modus operandi has always been to blast through traditional banking hurdles for founders, starting with services such as checking and savings accounts, debit cards, ACH payments, check payments and domestic wire transfers. and international. Venture capital debt is just the newest product offering – one that the Mercury team says will become a major part of its business.
It could also prove to be more lucrative than the products that Mercury currently earns revenue from. Its biggest source of revenue right now is debit card swapping, which means that every time a Mercury customer swipes their debit card, Mercury gets a small portion of the transaction. Akhund says Mercury also makes “a little money” on float, which is the time lag between when a customer deposits a check into their Mercury account and when those funds become available.
The question is whether the ease of use is enough to eat away at the market share of a brand like SVB, with its $30 billion market capitalization. That’s the only front Mercury currently competes on, given that its loan terms aren’t necessarily more advantageous or lenient than those of its rivals.
“We have comparative interest rates,” says Jason Garcia, head of capital and relationship management at Mercury. He says Mercury also takes a “small mandate” when extending venture capital debt and charges origination fees, much like banks like SVB. (Notably, Garcia previously spent time with SVB as senior vice-president.)
Apparently he does enough to convince some converts. Mercury – which is backed by Coatue and a16z, among other companies – has extended venture capital debt to several Series A startups to date, including AirGarage and PreAct Technologies.
In the meantime, the company talks about a good game, and in a world where there’s little allegiance to established banking brands, that could go a long way.
“There have been a lot of people who have tried [offering venture debt]“says Garcia. “Wells Fargo. JP Morgan. People know it’s a good product.
The challenge, he insists, “is that bankers have a hard time connecting with founders, and that’s something Mercury does really, really well. We are built by founders, they are technologists themselves, and we built it ourselves with them in mind.