Wall Street private banks court AI-era pre-IPO wealth

Wall Street private banks are increasing lending to founders and employees of AI-driven startups. Goldman Sachs reported loan balances in its private bank are up about 50% since 2023, and JPMorgan’s private bank says demand for lending has surged roughly tenfold in recent months.

Lenders are offering short-term, unsecured recourse loans and facilities secured by pre-IPO stock. Many of the loans are structured to come due in 12 to 18 months. Share-pledge agreements allow privately held shares to serve as collateral for credit lines or term facilities.

Demand is strongest among employees at companies expected to list within about three years and among founders who seek cash without selling shares or triggering immediate tax events. Bankers report borrowers commonly need money to buy homes in high-cost areas, exercise options, plan estates and pay taxes.

Banks view the lending as a way to expand client relationships ahead of IPOs. Institutions expect that lending can lead to underwriting assignments and long-term asset-management accounts once a company goes public. One major bank reported capturing more than $70 billion of net new wealth-management assets tied to recent IPOs, with a substantial portion linked to a single large technology listing. Some firms use lists from their investment-banking and investing groups to identify potential pre-IPO borrowers.

Lawyers and private-wealth specialists say stock-backed lending has grown sharply. Laura Uberoi, head of private wealth finance at a London law firm, reported she has doubled the number of pre-IPO pledge transactions globally since December compared with all of last year. Deal sizes have widened; smaller financings around $150 million have become more common as material paper wealth appears beyond founders to early and mid-level employees.

Bankers emphasize speed and on-the-ground relationship work. Solenn Seguillon, who leads the technology practice at a major private bank in San Francisco, noted that many founders are young and the window to build ties is short, prompting firms to expand local teams. Goldman has increased the number of wealth solutions professionals in San Francisco in recent years, while JPMorgan plans to double its private-banking headcount in the Bay Area over the next five years.

Alternative financing has also emerged. Some entrepreneurs prefer profit-share or nonrecourse structures from specialist investors to avoid personal liability if valuations fall. Travis Kell, co-founder of an AI startup, chose a profit-share arrangement with a specialist investor rather than pledge a large portion of private stock to a bank. Kell said the profit-share arrangement removed pressure to sell shares in uncertain markets and aligned incentives with the investor.

Banks and lawyers warn of risks. A sudden decline in a private company’s valuation or a failed IPO can rapidly reduce collateral value and leave borrowers and lenders exposed. Observers point to past high-profile collapses of pledged-stock financings as examples of that risk. At the same time, more active secondary share markets and company tender offers provide clearer paths to repay loans, which has made some lenders more willing to extend credit against private equity.

Some large banks are also investing in venture and private-market connections to identify future clients and better evaluate companies behind pledged shares. One bank has purchased a venture firm to enhance its exposure to the venture-capital ecosystem and help source pre-IPO lending opportunities.