Why VC-backed startups are choosing fintechs for banking
When a startup closes a funding round, founders and CFOs face an immediate question: where do they put the money?
Increasingly, they’re turning to fintech banking platforms for everyday tasks like payroll, vendor payments and expense reporting. The reasons go beyond just a pretty user interface. It comes down to better workflow, the right mix of yield and liquidity, and easier account management.
According to Ryan Gilbert, founder and managing partner of Launchpad Capital, VC-backed startups prefer fintechs because the experience is closer to the startup operator's workflow, and the UX often wins.
Built to meet modern standards
CFOs say fintech banking platforms and startups share core traits: they’re often remote, fast-moving and intolerant of friction.
"The whole [fintech] workflow has been thought through to be digital-first versus a bolt-on to a paper, manual process,” says John McCarthy, a fractional CFO who works with dozens of VC-backed companies.
The contrast shows up at onboarding. At a fintech, you can open an account and get it up and running right away. At a traditional bank, that process could take longer, and you might have to visit a physical location.
“A traditional bank account can take a week or more to open. Fintechs can get you live in a day or two, which matters when you're moving at startup speed,” says investor and operator Ian Spear.
With many legacy banks, there are also some transactions that fall through the cracks. For example, McCarthy recalls waiting to collect a $2.4 million check from a FedEx Office near his home — a workaround he and a large bank landed on when a straightforward wire transfer proved too complicated to arrange remotely.
Yield plus liquidity
Yield matters for VC-backed startups, but not in the way you might expect.
"We're not in the business of chasing yield," says McCarthy. "You just want the money to be there when you need it, and to get a return that is not embarrassing."
What startups actually want is a combination of:
- Decent yield. Meaningfully above what a traditional bank offers on a standard operating account.
- Immediate liquidity. No two-day wait to access funds, which largely negates any yield advantage.
- No minimum balances. Flexibility to move money as operational needs dictate.
The sweet spot isn't maximum return. It's a yield-liquidity tradeoff that doesn't require active treasury management from a lean finance team.
A product suite that grows with you
A founder might choose a bank and assume it will scale with them, but that journey isn’t always smooth.
One wrinkle that rarely gets discussed: What happens when a startup scales and outgrows its initial banking relationship? At many traditional banks, a basic business account and a commercial account are two different banking products with separate logins, and different account managers and service tiers.
McCarthy says a common scenario is when a founder opens a basic business account early on, raises a significant round, and then needs to migrate to a commercial banking relationship to access additional product offerings, including money market accounts. In this scenario, the account number and user interface can change, a transition that can happen when a company least wants any disruption.
"None of the logins are the same, none of the reports are the same," he says.
Fintechs sidestep this dynamic because they're not segmented by customer size the same way traditional banks are — the account that works at pre-seed still works at Series B.
Where traditional banks still matter
To be sure, none of this means traditional banks lose their value. Many experienced finance leaders use a dual structure: a legacy bank for the core operating account (especially if the company is pursuing venture debt) and a fintech for day-to-day transactions, expense management, and integration with modern finance tools.
“The VC-backed companies are typically very forward-looking in terms of their entire technology stack, not just banking, and that means they're probably more inclined to go with the more modern solution, because it's easier, it's nicer to look at, and it integrates with the rest of the tools you're using,” says Evan Pincus, a CFO and angel investor.
For a deeper look at what finance leaders want from a banking relationship, and where many traditional institutions fall short, check out our piece about what businesses look for in a bank account.
