According to Forbes, investors are now concentrating on damage control, such as ensuring startups in their portfolios can make payroll in light of the bank’s frozen uninsured deposits.
On Friday, the government shut down Silicon Valley Bank without warning and named the Federal Deposit Insurance Corporation as its receiver. This put an embarrassing end to the bank’s 40-year history.
And for the entrepreneurs and investors that SVB has financed and serviced as a bank — including the whole venture capital-backed ecosystem—it has created additional worries about when deposits and investments, if ever, would be reimbursed.
The news means the end of an era for the U.S. startup ecosystem. It came after a few days of speculation and fast-paced communication on Twitter, in company emails to founders, and in investor and entrepreneur group chats.
Forbes heard from more than ten venture capital investors on Thursday and Friday that the business has been in chaos since SVB revealed its financial problems and offered a plan of action on Wednesday, which scared many people in the field.
On Thursday, SVB CEO Greg Becker called a number of organizations and urged them to “be cool.” According to reports, this conversation had the opposite impact.
Several companies and their investors urged their startups to remove their money from the bank.Others rushed to Twitter in a show of unity that didn’t work to stop the bank run from getting worse.
Some people, especially managers of younger, smaller funds, were very upset when they heard about the suspension.
“I’m utterly frozen,” stated a manager.
“Everyone here is fatigued psychologically and physically.
Yesterday was fantastic.
“And it seems this was the last thing the founders needed.”
According to a number of founders and venture capitalists, attempts to withdraw funds from SVB on Wednesday and into Thursday afternoon were successful.
Others, who tried withdrawals Thursday evening and Friday morning, were uncertain as of Friday midday as to when they would receive their monies.
An SVB spokeswoman and an external PR agent did not immediately respond to a request for comment.
The California Department of Financial Protection and Innovation stated in a news release that insured depositors would have full access to their protected savings by Monday, March 13, 2023.
More than 93% of the bank’s $161 billion in deposits were uninsured. Uninsured depositors were informed they would get a receivership certificate for their remaining cash, which would be distributed in future dividend payments when the FDIC liquidated SVB’s assets.
Glen Water, head of early stage practice for Europe, the Middle East, and Africa at SVB, stated in a LinkedIn post that Silicon Valley Bank UK verified on Friday that it was an independent, UK-regulated bank that was not immediately affected by the FDIC’s action.
In the meanwhile, founders discussed their capacity to withdraw cash using Signal and Telegram channels.
Nowadays, the most important question for investors and entrepreneurs is, according to various company leaders:
Payroll will be made by startups next week.
Several entrepreneurs who banked with SVB may need to pay their employees as early as Tuesday, according to a source; board directors (who are typically venture capitalists who have supported the company) are also liable for this obligation.
According to an email posted on Twitter by Rippling’s CEO, Kevin Yun, Rippling’s clients were notified via email that they needed to take action to continue using their accounts when the company shifted from SVB to JPMorgan Bank.
In a comment thread, the CEO of Rippling, Parker Conrad, tweeted that the configuration modification was for clients who had begun pay runs earlier in the week.
“Today and Monday, if you’re a startup with funds in other accounts, your priority is to have your payroll provider withdraw from those accounts.
“If you don’t have that money available, you pray that this issue is addressed this weekend,” said one venture capitalist.
At least one VC company has agreed to support its portfolio’s wage obligations.
Clay Dumas, a partner at Lowercarbon Capital, emailed the climate-focused company’s CEOs on Friday afternoon, requesting that founders who were unable to make payment within the next two weeks respond with the amount of cash required and the payroll date.
In the absence of alternative options, Lowercarbon stated in an email that it would “directly front” the necessary funds for its companies.
Chris Sacca, co-founder of the business, told Forbes on Friday evening, “We’re delighted our Lowercarbon portfolio payrolls are paid, but now other investors must do the same.”
“It turns out that founders and staff are not compensated for their tweeting.”
For those unfamiliar with how the startup environment generates and maintains funds, SVB’s reach may be difficult to comprehend.
Several funds, from the largest and most well-known to the newest and most promising, held their own capital with the bank; its partners frequently used SVB for their personal banking or mortgages.
In contrast, startups retained most or all of the funds they had received and called from SVB investors.
Others in the industry are attempting to answer a number of issues, such as what this implies for cryptocurrency firms that use a combination of cash and tokens and SVB’s role in funding and organizing various events and development programs for the sector.
One rising fund manager stated that investors and founders directly know SVB personnel, many of whom are previous VCs and founders themselves, adding a “very genuine personal and cultural” element to the impact.
“SVB has badly botched this.”
Prior to Friday’s announcement of the closure, VCs hurried alongside their entrepreneurs and the general public in group emails, calls, and chats for information.
According to Forbes, the chairman of another VC company stated, “No one has had solid information.”
In the meanwhile, founders discussed their capacity to withdraw cash using Signal and Telegram channels.
Some organizations, including Union Square Ventures, Coatue, the Founders Fund, and others, reportedly asked their founders to withdraw their cash prior to Friday. According to Forbes, the investors did so out of “an abundance of caution.”
One opined, “I believe the money will be just fine by the end of the day.”
Once the dust settles, however, firms that required their cash at SVB immediately—for an acquisition, for example, or for a large expenditure—may be inconvenienced, the investor said, adding that they hoped the bank would be sold swiftly to restore the flow of money as soon as possible.
Several investors contend that such warnings and the following outflows from the bank prompted SVB’s possibly preventable collapse.
“I’d like to formally thank my peers in the venture community whose stellar leadership over the past 48 hours triggered a run on deposits at Silicon Valley Bank,” Primary Venture Partners cofounder Brad Svrluga wrote on LinkedIn on Friday, noting that SVB “made some big mistakes” but adding that “the ultimate failure was from the hysterical urging on social media of VCs who undermined our shared interests.”
Yet the CEO of another company, who had counseled founders to resign if they could, contended that SVB alone should be held accountable.
“It is the company’s responsibility to convince the market not to worry.”
SVB has utterly botched this.
They chose to incur all of these losses without a financial plan in place, and now they’re blaming the market, they claimed.
You cannot fault the client for withdrawing funds from the bank.
Indeed, for other Silicon Valley residents, the loss represents an opportunity.
On Twitter, the CEOs of Brex and Mercury, among others, have been posting information on their own alternative offerings—for Brex CEO Henrique Dubugras, a swift flip from Tuesday’s discussion about his company’s AI integrations, which is now a distant memory.
The CEO of Mercury, Immad Akhund, tweeted that his “DM + emails are going a little wild” and provided a link to a priority onboarding website to assist startups with opening a bank account.
(Akhund afterwards tweeted his support for SVB with the phrase “hope they make it through”).
Another firm, Trace Financial, reported on Friday that SVB withdrawals of $200 million were made through its service in the preceding day, with $100 million already transferred into Trace checking accounts.
Trace only began selling checking accounts yesterday, speeding up the launch date in response to the news.
Obviously, Brex, Mercury, and others are financed by venture capital.
On Friday, though, their investors were too busy counseling their other portfolio firms on anything from important acquisitions whose funds have been frozen to next week’s payroll checks to engage in victory laps.
