Banking on Growth: How Toast and Silicon Valley Bank Created Mutual Upside Through Strategic Warrants

Banking on Growth: How Toast and Silicon Valley Bank Created Mutual Upside Through Strategic Warrants

Duane Good

Smart startup financing isn't just about the cash—it's about creating partners with skin in your growth game.

In startup financing, the terms that create true partnerships are often hidden in the details. We recently dug into another fascinating warrant structure from public filings, this time between restaurant tech powerhouse Toast and Silicon Valley Bank from 2016. What we found was a masterclass in strategic financing alignment that benefited both parties tremendously in the years that followed.

The Structure: Clever Capital Alignment

The warrant gave SVB the right to purchase 80,000 shares of Toast's Series B Preferred Stock at $1.9538 per share. This was tied to a loan agreement between the companies, effectively giving SVB equity upside potential alongside their lending relationship.

Looking back, given Toast's eventual IPO valuation, this structure created extraordinary value for SVB while simultaneously strengthening Toast's banking relationship during a critical growth phase.

Why This Made Sense for Toast

For Toast, the warrant structure accomplished several key objectives:

  • Access to Capital: They secured crucial debt financing without giving up board seats or control
  • Banking Partner Commitment: They transformed a vendor relationship into a true partnership
  • Favorable Terms: They likely secured better loan terms by including the warrant
  • Clean Cap Table: The structure kept their cap table clean compared to raising additional equity
  • Growth Flexibility: Debt + warrants preserved flexibility for future fundraising

In the growth phase Toast was experiencing, having a deeply committed banking partner was worth far more than the dilution from the warrant.

SVB's Strategic Advantage

From SVB's perspective, the approach was equally brilliant:

  • Equity Upside: They gained exposure to one of the fastest-growing restaurant tech platforms
  • Relationship Building: The warrant created a foundation for expanding the banking relationship
  • Portfolio Diversification: They diversified their return profile beyond just loan interest
  • Risk Mitigation: The equity component helped offset the risk of lending to a growth-stage company
  • Long-Term Alignment: The 10-year term created a decade of partnership potential

SVB has built much of its success on these strategic alignments with high-growth startups. This wasn't charity – it was smart business that generated outsized returns when Toast went public.

The Power of Banking Warrants

What makes banking warrants particularly effective is how they align incentives. SVB wasn't just a lender hoping Toast would repay their loan – they became active participants in Toast's success story. This alignment manifested in countless ways:

  1. More Responsive Service: When your bank has equity upside, suddenly your calls get returned faster
  2. Higher Risk Tolerance: Partners with equity are more comfortable navigating challenging periods
  3. Network Access: SVB's ecosystem became more accessible to Toast
  4. Strategic Insights: Banking partners with skin in the game share market intelligence more freely

This alignment paid dividends for both parties as Toast navigated its growth journey toward IPO.

A Model Worth Replicating

For founders and finance teams, the Toast-SVB relationship offers valuable lessons:

  • View warrants as relationship-builders, not just financing terms
  • Consider aligning key financial partners through equity upside
  • Recognize that smart dilution can create more value than it costs
  • Structure warrant terms that create long-term alignment
  • Use warrants strategically with partners who can contribute beyond capital

I've seen firsthand how these strategic alignments can transform transactional relationships into true partnerships during critical growth phases.

Making It Simpler: The Wrnt Approach

Of course, the challenge has always been implementation. Warrant structures involve complex documentation, valuation considerations, and ongoing administration that create friction.

That's why we built Wrnt – to make these powerful alignment tools accessible to more companies and their partners. Our platform handles the complexity so you can focus on the relationship benefits without administrative headaches.

The Strategic Takeaway

In today's challenging market, creating true partnerships with key vendors and financial institutions isn't optional – it's essential for sustainable growth. Strategic warrant structures, exemplified by the Toast-SVB relationship, provide a powerful mechanism for achieving this alignment.

As someone who's navigated both sides of these partnerships, I believe more companies should explore how warrant structures might strengthen their key relationships. In many cases, the returns far outweigh the costs.

Footnote: This analysis is based on publicly available filings and represents our interpretation of the warrant agreement between Toast and SVB. While we believe this interpretation to be accurate, readers should consult their own legal and financial advisors when considering similar arrangements.