Big Banks Scramble for AI Startups After Tech Lender Implodes
Silicon Valley's favorite banker just vanished—and the old guard is moving in.
When the go-to lender for bleeding-edge AI ventures collapsed last quarter, it didn't just leave a crater in the funding landscape. It triggered a full-scale land grab. Now, the very institutions those startups once aimed to disrupt—the legacy banks—are racing to snap up their business.
The Vacuum Effect
No one saw it coming, or so they claim. The specialized tech lender's downfall created an immediate capital void for pre-revenue, compute-hungry AI firms. Traditional banks, once hesitant, now smell opportunity. They're deploying dedicated venture debt teams, offering sweetheart terms, and fast-tracking due diligence—all to lock in the next potential unicorn.
From Disruption Target to Sugar Daddy
It's a stark pivot. For years, fintech and AI startups vowed to bypass the bloated, slow-moving banking system. Now, they're lining up at its doors for non-dilutive loans to fund their GPU clusters. The irony isn't lost on insiders—it's the ultimate 'if you can't beat 'em, join 'em' play, but with the banks holding all the cards.
The New Underwriting Playbook
Gone are the simple metrics of cash flow and collateral. Bankers are now evaluating 'algorithmic moats,' 'model convergence rates,' and 'inference costs.' They're betting on intellectual property as the new hard asset. One managing director quipped they're learning more about tensor processing units than treasury bonds these days.
Of course, this newfound love comes with fine print—warrants, tighter covenants, and a seat at the table. The banks get a foothold in transformative tech, and a cynical observer might note they're effectively building a hedge: fund the disruptors, and if they succeed, you own a piece. If they fail, well, you still collected the interest. Classic finance—heads they win, tails you're restructuring.
The race is on. The collapse didn't kill the AI gold rush; it just changed who's selling the shovels.
Banks build teams from failed competitors
Citizens wanted to acquire First Republic in 2023, but JPMorgan won instead. The bank still managed to hire approximately 150 people who had worked at First Republic. Chief executive Bruce Van Saun described them in December as “a huge amount of talent who know everybody in the San Francisco Bay area and the Valley.”
That hiring spree helped Citizens build its private banking and wealth division to 550 employees. Van Saun says the bank is developing financial products aimed at pre-IPO companies and individuals whose AI-related wealth exists only on paper right now.
“Eventually, when they do get liquidity, and they have broader needs, and they want to invest to get diversification, there’s a real opportunity there,” Van Saun explained. Citizens introduced specialized loan products targeting startup founders and venture capitalists late last year. The Rhode Island-headquartered bank wants to spread its private banking operation to additional cities this year, including Philadelphia.
HSBC purchased Silicon Valley Bank’s UK division, bringing roughly 700 bankers on board, and added about 40 US employees while growing its venture banking operations. JPMorgan Leveraged its First Republic acquisition to pursue wealthy individuals and position itself as the top choice for startups, their creators, and venture funding sources.
JPMorgan opened financial centers for affluent customers in San Francisco and New York last October. It announced expansion and renovation plans for its San Francisco facilities in April of last year.
Integration challenges lead to staff turnover
Merging high-growth, volatile startup customers into conventional banks with strict, cautious structures has proven difficult. Employee turnover has been an issue.
Flagstar Bank acquired a significant portion of Signature in March 2023. It later added six private banking groups totaling more than 100 former First Republic employees. But Flagstar encountered problems in early 2024 requiring a $1 billion capital boost. New Jersey-based OceanFirst Financial hired away over a dozen of its private and business bankers last year. Additional departures went to rivals like Citizens. Gary Farro and Jason Birnbaum, who came from First Republic, left with others to launch Graintree Lending Partners.
Richard Raffetto oversees commercial and private banking at Flagstar. He considers this turnover part of regular operations. The bank has also recruited, including Mark Pittsey from HSBC to lead private banking and wealth last year, along with professionals from City National Bank and JPMorgan. New locations opened in Palm Beach, Florida for private customers last year and in New York City this month. A San Francisco office is scheduled for 2026.
Expanded services for wealthy tech founders
New hires enabled Flagstar to introduce products like interest-only mortgages and capital call credit facilities. Programs for partners at private equity, venture capital, and private credit firms started, along with aircraft and yacht financing. Late last year, senior HSBC executives joined for estate planning, wealth planning, and insurance services.
Flagstar’s private banking and wealth segment now manages over $20 billion in deposits and client assets with approximately 480 workers. Former First Republic bankers make up about one-third of Pittsey’s group.
Pittsey noted that before March 2023, “Hiring anyone from those three banks before March of 2023 was nearly impossible.”
The 2023 turmoil taught companies not to depend on a single financial institution. Silicon Valley Bank went down partly because tech-focused customers with uninsured deposits withdrew money faster than the bank could sell assets to cover them.
The AI surge still has room to grow. Regulatory changes will likely make venture lending easier for banks. In December, the Office of the Comptroller of the Currency eliminated guidance that limited this type of lending, which was implemented after Silicon Valley Bank collapsed.
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