Mercury, a well-funded three-year-old startup that provides a wide range of startup banking services, today introduced a new offering to its clients: venture loans.
The idea is to provide up to $200 million this year and $1 billion next year to startups that have already raised $2 million from at least one institutional investor. The product is only for early-stage startups, with Mercury offering loans ranging from 25% to 50% of a startup’s equity.
The move puts the 250-member San Francisco-based organization, which it says already has 60,000 companies on its platform, in conflict with Silicon Valley Bank (SVB). It also requires a lot of thought, says Imad Akhund, co-founder and CEO of Mercury.
Like many fintech startups, Mercury is not a bank, but a banking platform that offers FDIC-insured products through Arkansas-based Evolve Bank & Trust, says big companies like SVB Rivals are bulky and customer expectations are changing.
“These banks never had a need to build a product, so the idea of visiting a website, filling out forms, and connecting to QuickBooks is not something a bank usually thinks about,” says Akhund. “For a product entrepreneur, this sounds obvious, but that is how this experience is created in banks. Everything is still done by email and in PDF format. Lots of phone calls back and forth, lots of Excel spreadsheets.”
While an increasing number of startups nonetheless began to go into debt, either developing or expanding their runway soon after, SVB reports that 63% of US companies that went public in the first half of last year are clients. is that it is a product-focused startup, says Akhund.
Akhund says he knows startup pain points all too well, having previously co-founded two previous companies, including HayZap, a mobile ad network he acquired in 2016. In fact, it was through this first-hand experience, as well as his work with hundreds of other startups, he said, writing angel checks over the years, that Mercury was founded.
Their methodology has always been to remove traditional banking barriers for founders, starting with services such as checking and savings accounts, debit cards, ACH payments, check payments, and domestic and international bank transfers. The Venture Debt is the latest product offering that the Mercury team believes will be an important part of their business.
It may also be more attractive than the products that Mercury is currently monetizing. Currently, the largest source of revenue comes from debit card exchanges, which means that each time a Mercury customer uses their debit card, Mercury receives a smaller share of the transaction. Akhund says that Mercury also makes “little money” from floating funds, which means there is a delay between when a customer deposits a check into their Mercury account and when the funds become available.
Whether ease of use is enough to destroy the market share of a $30 billion brand like SVB remains open. This is the only front on which Mercury currently competes, in the sense that Mercury’s credit terms are neither more favorable nor more lenient than those of its competitors.
“We have the same interest rates,” said Jason Garcia, head of wealth and relationships at Mercury. He says Mercury also gets a “short warrant” when it expands venture capital and charges a creation fee, much like banks like SVB. (Notably, Garcia previously worked for SVB as a senior vice president.)
Apparently, this is already attracting some new converts. Mercury, backed by Coatue and a16z, has provided venture capital to several Series A startups to date, including AirGarage and Preact Technologies. The company also talks about playing well, and in a world where few have loyalty to established banking brands, that could go a long way.
“There are many people who have tried it” [offering venture debt]says Garcia. Wells Fargo Company. JP Morgan. People know it’s a great product.”
The problem, he stressed, “is that it’s hard for bankers to connect with the founders, and that’s something Mercury does very well. The founders make us, they are the technologists themselves, and we built it ourselves.” Keep them in mind.”