Just before a group of big banks extended a $30 billion lifeline to First Republic Bank last Thursday, a five-year-old InsurTech offered its support to Silicon Valley Bridge Bank, the successor of the failed bank that catered to startups.

In the banking sector, U.S. regional banks like First Republic and international banking giant Credit Suisse struggled with their own problems late last week as contagion fears swelled in the wake of the earlier Silicon Valley Bank and Signature bank collapses. Back in the insurance sector, as follow-on banking troubles were playing out, Vouch, an InsurTech that writes directors and officers liability and other commercial insurance lines for venture-backed technology startups, pledged to allocate “a significant portion of its corporate funds to SVB, backed by the FDIC’s full backstop.” (Read more about continued troubles in the banking sector in related article, “Too Soon for ‘All Clear’ in D&O Insurance Market“)

Vouch announced its intention to continue working with the Silicon Valley Bank team and support the newly created Silicon Valley Bridge Bank, N.A (SVBB NA) “to demonstrate its confidence in the institution,” the company said in a statement on its website. The statement was preceded by several social media announcements from Co-Founder Travis Hedge.

Hedge actually worked for SVB’s venture investing arm, SVB Capital, prior to co-founding Vouch in 2018 with Sam Hodges, the former founder of Funding Circle. Hedge told his LinkedIn followers, “Vouch Insurance was fully operational throughout the [March 11-12] weekend, which allowed us to continue our commitment to our clients and the broader technology community with concrete actions, not just words.” In addition to committing an undisclosed amount to the bank, actions included providing startup founders access to lawyers over the weekend of uncertainty as they considered “drastic measures” to save their businesses.

“Like so many of our friends such as Brex, we believe that a healthy SVB is critical for the future of innovation. SVB has stood by our industry for 40 years, and it is our turn to stand by them,” Hedge said.

In a series of profile articles published in late 2021, Vouch Co-Founders Sam Hodges and Travis Hedge described the mission of their company, an InsurTech MGU and reinsurer specializing in commercial insurance, as one of “building insurance for the companies building the future.”

Vouch is backed by $160 million from SVB Capital, Ribbit Capital, Index Ventures, and other investors, and describes itself as the preferred insurance provider for Y-Combinator, OnDeck, Silicon Valley Bank, Brex, Carta and WeWork.

Brex, a provider of all-in-one financial software (for expense management, corporate cards, managing business deposit accounts) that has an embedded insurance relationship with Vouch, announced it would move $200 million of its corporate funds from big banks to Silicon Valley Bank. Besides Brex, technology companies like Carta (a provider of capitalization table management software) and WeWork (shared workspaces) are Vouch partners—embedding Vouch’s insurance coverage offerings in their software platforms.

In addition, Vouch benefits from customer referrals from SVB and Y Combinator. Silicon Valley’s financial institution and the startup aggregator were also instrumental the InsurTech’s founding through initial funding and subsequent capital rounds.

“Vouch will continue to collaborate with SVB to provide business insurance and risk management services to SVB clients. Over the last three years, the partnership has enabled thousands of startups to access Vouch’s exclusive insurance products, further strengthening the startup ecosystem’s resilience,” Vouch said in its announcement pledging support last week.

Asked about the percentage of insurance business coming from SVB referrals, a Vouch media representative told Carrier Management, “Historically it’s been a valued but minority part of our new business referrals.”

“SVB has been a great partner, and we hope to be able to continue working with them in that way in the future,” she wrote.

Separately, Hedge and Hodges responded to Carrier Management’s questions about Vouch’s deposits with the bank, the events of the prior week, how InsurTechs and other tech startups had been using the bank, directors and officers liability risks, and the future of the innovation economy during a phone interview late last week. In short, they explained why Vouch continues to be bullish on tech startups and the bank that helped them emerge—Silicon Valley Bank.

Vouch offers proprietary coverage through two partner providers: United Specialty Insurance Company and State National Insurance Company, according to its website. Vouch participates meaningfully on coverages it underwrites alongside other reinsurers, operating as an MGU and a reinsurer. Related 2021 article: InsurTech Decision Point: Shell Company or De Novo Carrier?

Q: Let’s turn the clock back a week. When and how did you both learn about what was going on at Silicon Valley Bank? How did you feel? What was the first thing you did?

Hodges: Situated as we are, both based in the Bay Area right now, we obviously are in regular contact with many other entrepreneurs and investors. We first started hearing rumors on Wednesday night of last week—on March 8—that there just were some questions around how the overall financial position of SVB was. Then on Thursday, it pretty quickly became clear that a lot of folks had made the decision to start withdrawing deposits, which of course we were sad to see knowing SVB very, very well.

It was really Wednesday and Thursday where we really caught wind at least in a detailed way of those early moves. [And] we immediately sprung to action. We took action to make sure that we were protecting our business, but also, very importantly, our clients. We fortunately did have financial redundancy built into how we operate the company.

Moreover, we, over the weekend, made sure that the clients we have, who could theoretically have been impacted by this, had access to strong legal advice. We actually set up and made folks aware of a third-party legal hotline that we dedicated in case folks had specific questions around payroll or potentially HR issues that might have come out of the whole situation…

Given the Fed’s decision on Sunday in coordination with the FDIC and Treasury to declare a state of systemic risk in the banking sector and, ultimately, to step in, a lot of those concerns didn’t end up transpiring. [Still], we were very proud of how our team rallied in service of our clients and made sure that we were getting out ahead of some of the knock-ons that might have occurred had things gone a bit differently.

Q: There are a couple of parts to Vouch’s announcement of support for SVB. One was that Vouch putting a significant portion of it corporate funds at Silicon Valley Bank. Can you explain what significant means, and is this an addition? Did you pull out any funds last week that you are now replacing?

Hodges: For a long time, we have had multiple different financial accounts and banking partners. SVB has historically been a very important one of those. Our commitment is, insofar as they continue to operate with strong financial standing and backstop, we would like to make sure we’re continuing to work with them given the important role they play in this overall space.

To be clear, we have redundancy in our financial operations. We have already set up additional steps in that direction, and we’ll continue to ensure that both as well as our partner funds are very well protected.

At the same time, at this point in time, it’s important that some folks take a stand. We would like to, if things play out the way we hope, see a strong SVB continue in some form. We think that would be a good thing for the ecosystem.

We’re of course seeing and reading the same things you are in terms of the steps the FDIC is taking on that front. We’re just waiting and seeing.

Sam Hodges and Travis Hedge, Vouch Co-Founders

Q: It sounds like because you had some redundancy, there was no need to move any funds last week, and now, you’re adding some additional funds?

Hodges: Like I said, we, for a long time, have had substantial funds with SVB. We take obviously an active role in managing our treasury operations. Given the way those funds are held, we don’t see any reason to make meaningful changes beyond some of the redundancy that I already mentioned.

Q: You mentioned that you were connecting some of the startups with lawyers over the weekend. And Travis, in his post, mentions that the founders were considering some drastic measures. Talk about that. What were client founders most concerned about and what did the lawyers help them with?

Hedge: I think if you put yourself in the shoes of our clients and just the conversations we’ve had over the last week or so, concern No. 1 for so many was making payroll. This happened on a Friday [the regulatory seizure of the bank]. People were setting up their payroll for this week as well.

We heard a lot of stories of founders looking to cover their payroll personally or take out personal debt to cover that week’s payroll for their employees. They were looking at the potential shutdown of their business if they weren’t able to make ends meet very short term.

There was a lot of, I think, stress and anxiety around that for folks. I think, at the very least, setting up the legal hotline allowed them to understand their options. We had several dozen clients take advantage of it.

From the feedback we’ve gotten, it’s very reassuring for them to just have that resource and to set up any sort of agreements and backstops they needed to if that became a need.

I think, fortunately, with the actions taken with the FDIC over the weekend, those actions in a lot of ways did not need to be taken. [But] we got a lot of strong feedback from some clients over the last 24, 48 hours that just really appreciated having that support.

Q: When we’ve mentioned Silicon Valley Bank in Carrier Management articles before, it’s always been in the context of an InsurTech raising equity funding. When startup executives were in the mainstream news last week talking last about deposits and making payroll, it wasn’t entirely clear whether that was a problem for InsurTechs as well.

What Silicon Valley Bank services does the InsurTech community typically use? Is it just SVB Capital–tapping into equity financing and venture debt? Or do they have deposits with the commercial bank as well?

Hodges: The way I think about SVB simply is that they were, and frankly in the bridge bank form they are in today, just like any other bank. They take in deposits and they make loans. That’s their fundamental business model. SVB did have a venture capital and fund management affiliate, which was called SVB Capital. That was, and I believe still is, under the bank holding company.

(Editor’s Note: On March 17, SVB Financial Group, the holding company for SVB Capital and SVB Securities, filed a voluntary petition for a court-supervised reorganization under Chapter 11 in the United States Bankruptcy Court for the Southern District of New York to preserve value. SVB Securities and SVB Capital’s funds and general partner entities are not included in the Chapter 11 filing.

SVB Capital, a venture capital and private credit fund platform, and SVB Securities, a regulated broker-dealer, continue to operate in the ordinary course, the holding company announcement said, reiterating an earlier statement on March 13 indicating that SVB Financial Group is exploring strategic alternatives for these two businesses.)

On the banking side itself, the way I think about it is that any company, whether you’re running a restaurant or a venture-backed startup, if you lose access to your bank account and your payroll processing is attached to that bank account, then you’re in a really tricky situation because you might not be able to make payroll. Similarly with your other short-term cash obligations—paying off credit cards, paying vendors’ invoices—all those activities are very reliant on having access to your deposit account.

The concern last week at least was to what extent would folks have access, coming into this week, given that it’s a week when a lot of companies do process payroll.

Hedge: I would add that Silicon Valley Bank played a very important role in the early days of the InsurTech ecosystem. Whether you’re talking about some of the MGAs you’ve written about or the pure-play software providers, getting banking services as any early stage company is incredibly challenging. That’s why SVB had such a dominant position in this space.

InsurTech was no different as a new category, I think, struggling working with traditional banking providers. I don’t think the InsurTech category would be what it is today without those services.

Q: A lot of InsurTechs have equity funding from SVB Capital. Vouch does as well. That means that SVB Capital has an ownership stake in the company. Today, SVB Capital still exists. What would happen to that if it goes away? Would an acquirer of SVB Capital step in and take over that ownership stake?

Hodges: It wouldn’t be fair for us to speculate on what the fate of SVB Capital will be. The thing I would remember is that an investment fund—whether it’s a mutual fund, venture fund, hedge fund or private equity fund—at the end of the day, most of the ‘ownership’ quote-unquote is really the LPs [limited partners]. The job of the venture fund in this case would be to make and then manage the investments. But once made, most of the ownership still resides with those limited partners.

So, we don’t expect any material changes from Vouch’s perspective, almost regardless of how things play out. We, of course, think very highly of the team of SVB Capital. We hope, similarly with Silicon Valley Bank, we hope the SVB Capital team and funds remain active, but that will happen somewhat independently of how we continue to build Vouch, which again, we are doing and we’ll continue to do. They’re somewhat independent.

Q: Can you share your thoughts on the health of the InsurTech sector generally? What are the short-term or long-term implications of the SVB collapse for the innovation sector in the insurance industry?

Do you think incumbents will jump in as strategic investors, replacing the VCs and SVB, or perhaps make acquisitions in InsurTech? Or are their appetites going to wane at this point?

Hodges: We are big believers in the digitization of insurance, particularly in commercial lines insurance where we play. We continue to believe there’s a tremendous amount of opportunity to innovate and deliver better client experiences, better coverage, better approaches to underwriting and rating, and better approaches to servicing the full life cycle of an account. Absolutely, we continue to see lots of opportunity for innovation and rethinking in many spaces. Some of that innovation is coming from the incumbents, which we welcome. Obviously, some of the innovation is coming from newer players and challengers.

We think, at Vouch, there’s still a lot of great work to be done. We feel very good about the reinsurance and other risk capital partners we have around the business. On the strategic front, absolutely, we are seeing strategics take a lot of interest to what is going on in the space.

I do think there will likely be not only more partnerships in the space but also other strategic investments as the overall category continues to roll forward. I say that in the context of the broader market, not specific to Vouch per se.

Hedge: The one point I’d emphasize from what Sam said there is, we have a lot of carrier partners that we work with, talk to a lot of the strategics in the space, and I think everyone sees that the world is just moving faster and faster. You don’t really have a choice not to lean into that and lean into the digitization of the industry because you’ve got to keep up with the rate of change out there.

Q: Travis, in your recent LinkedIn post about supporting SVB, you said something about actions meaning more than words. Over the past week, there’s been a lot of words on Twitter and LinkedIn, which some InsurTech leaders called out as hypocritical. Were you heartened by what you read or disappointed by what you saw from fellow startups and VCs? What was your take on some of the commentary?

Hedge: With any public conversation these days, there’s always going to be things on either side of that ledger—[that] both disappoints you and makes you proud. What I’ve seen particularly over the last few days is leaders across the community, whether it be venture capitalists, even some institutional investors we’ve had conversations with, or founders and entrepreneurs that have stood up to recognize that it is critical for the health of the venture and technology community long term.

It’s critical for the health of our country, frankly, and our economy to have a vibrant innovation economy. It takes leadership to stand up and do that.

I’ve been very proud of the moves and statements that we’ve seen from some of our partners, like Brex, to stand up and put their money where their mouth is. We’re proud to be part of that community.