Ryan Gilbert, the founder of venture capital firm LaunchPad Capital, talks about the bankruptcy of the bank that used to be the go-to lender for tech companies.
On March 10, Silicon Valley Bank, the bank of startups, became one of the biggest US bank failures since the 2008 financial crisis.
The collapse of SVB is a thunderclap in the innovation economy. It leaves a lot of uncertainty about the ability of many startups to be able to operate in the coming weeks as their funds are locked up.
The Federal Deposit Insurance Corporation (FDIC), which took control of the bank and created a new entity, indicated that unsecured depositors, that is, SVB clients with more than $250,000 in their accounts, will not have access for the moment. to your money. .
SVB’s bankruptcy was hastened by a bank run by its numerous clients. Venture capital firm LaunchPad Capital was among the clients who managed to withdraw their funds before the disaster.
Its founder, Ryan Gilbert, calls the bank’s failure a “big loss” for technology in an interview and hopes the federal government will step in to help affected startups, particularly in terms of cash flow.
Gilbert spoke to TheStreet; His comments were edited for clarity.
What do you think went wrong with SVB?
Gilbert: They had assets that made sense at the time, but when the Federal Reserve raised interest rates, existing loans became less valuable. And what the government effectively did by raising interest rates was raising the cost of being a bank. So when customers who had deposits at SVB moved their money to other banks, SVB had to pay off loans that were less valuable, and that created a huge gap on its balance sheet, a gap of about $1.8 billion.
So the result was that the institution had to raise more capital and that created a lack of trust and, in essence, a run on the bank.
Is this what led LaunchPad Capital to withdraw their money?
Gilbert: Exactly and they all did the same.
We successfully withdrew our funds, but after a long delay. We were able to withdraw funds yesterday (March 9). It took about five hours, which is much longer than usual. Wires usually disconnect in minutes and that was clearly a sign that something was not normal.
Can you explain the interaction you had with the bank?
Gilbert: We set up transfers electronically, as we regularly do to fund our businesses, and when transfers don’t go out, you recognize there’s a reason for that.
It may be that the system has been overwhelmed, or perhaps there have been some delays. I’m not sure.
Were you able to withdraw all your funds?
Gilbert: We were able to do a lot of the transactions we wanted.
Have you been contacted in the last few hours by concerned startups?
Gilbert: Everyone has contacted us. My phones have been burning. And other people have been trying to understand what happens next. If you are a Silicon Valley Bank customer, you must wait until Monday (March 13). On Monday, it will be operating as a new entity under the control of the FDIC. They will tell you what happens next.
So what do people ask you today?
Gilbert: They’re asking, “How can we get our money out today?”
What about startups you’ve invested in?
Gilbert: I think along with other investors we will look at a lot of companies and make sure they have what it takes to get out there and continue to survive and execute on their plans.
But we have to do it in the context of understanding what it means to get what’s known as a “receivership certificate” for the remaining amount of unsecured deposits. That’s a great question. We have to understand what that means. Are these negotiable instruments? Can you get credit against them? How do they work?
What did SVB mean to you?
Gilbert: I used to be a client. SVB was a very important bank in the venture capital ecosystem. It is a bank with which we work significantly. They held our deposits when we had deposits with them, and extended lines of credit and other loans to many businesses. They understood startups, they probably understood startups better than any other bank. So it’s a great loss that they are no longer in business.
There are many unknowns. If you’re a start-up or business, and you’re at Silicon Valley Bank, you want to be in a position where you can run your business and be highly dependent on your institution, especially if you have payroll to do. or make insurance payments or contributions to retirement funds.
And if your money is blocked, you can’t do that.
So how is this going to play out?
Gilbert: I think the federal government will have to step in and show that it is in a position to support the banking system. That’s what it all comes down to, because otherwise there will be a never-ending escalating bank run.
Which firm is going to fill the void left by SVB?
Gilbert: I don’t have an answer for that. I think it’s a big void that needs to be filled, but I don’t have the answer. I don’t think it’s Goldman Sachs and I don’t think it’s (JPMorgan) Chase because they’re already so big and have a lot going on.
