© Reuters. FILE PHOTO: A locked door to a Silicon Valley Bank (SVB) location on Sand Hill Road is seen in Menlo Park, California, U.S. March 10, 2023. REUTERS/Jeffrey Dastin/File Photo
By Greg Bensinger, Anna Tong, Krystal Hu, and Jeffrey Dastin
(Reuters) – The sudden collapse of Silicon Valley Bank on Friday shocked the startup community, which has come to view the lender as a reliable source of capital and escrow partner, particularly for some of the biggest tech projects.
On Friday, technology chief executives scrambled to make payroll after California banking regulators shuttered SVB Financial Group in a bid to protect depositors following a plunge in the value of their investments and a deluge of requests for retreat that started just two days ago.
The bank was seeking a sale, sources told Reuters, and trading in its shares halted after they plunged 60% on Thursday night.
Startups with money in Silicon Valley Bank scrambled to come up with plans to pay workers after hearing their funds would be locked up over the weekend, said Jai Das, president of Sapphire Ventures, whose investments include Box and LinkedIn.
“Some of the people have moved their money from SVB to other banks,” he said. “Hearing from CEOs who are looking for ways to use their own capital or their own funds to fund part of the payroll.”
VC investors are discussing solutions for startups that have funds tied up in SVBs and are struggling to process employee and vendor payroll, including offering portfolio companies a line of credit.
“That’s the number one conversation and the only thing people can do something about right now,” said Pegah Ebrahimi, managing partner at FPV Ventures. “I think institutions, venture capitalists and banks need to come together to solve this short-term liquidity squeeze and help resilient companies access funds to pay their payroll.”
Dean Nelson, CEO of Cato Digital, was in a line outside SVB’s headquarters in Santa Clara, hoping to get answers. He said that he was concerned about the company’s ability to pay employees and break even.
“Access to cash is the biggest issue for most businesses here. If you’re a start-up, cash is king. Cash and workflow, to be able to stay on track, is critical.”
At some Silicon Valley Bank branches in California, depositors gathered early Friday to try to withdraw their cash, fearing it would not be available for days to come. And in some places, the doors were closed and cursory notes were found advising customers to try somewhere else.
At a branch in Menlo Park, California, customers received a recorded press release informing them that the bank had gone into receivership and would be known as Deposit Insurance National Bank of Santa Clara.
The bank has been instrumental in the formation of many early-stage companies due to its reputation for betting on startups that might otherwise have had little chance of survival and for which the largest banks may prove too risky. He has had financial relationships with a who’s who of Silicon Valley companies over the years, including the parent company of Snapchat. Complement inc. (NYSE:).
The full extent of the fallout from the bank’s fall could take weeks or months to assess and could herald a period of more cautious investment in technology startups.
A Silicon Valley Bank spokeswoman did not immediately respond to a request for comment sent Friday.
The FDIC said Friday that insured depositors will regain access to their deposits no later than Monday, when branches reopen under the regulator’s control.
‘HEART STOP’
The speed of the bank’s precipitous decline took the start-up community by surprise.
Ashley Tyrner, CEO of startup FarmboxRx, was vacationing with her family in Costa Rica Thursday afternoon when she said she began receiving frantic text messages from her COO, who had initiated an eight-figure wire transfer, completely emptying his Silicon Valley Bank. account.
Tyrner said he wondered if his co-founder had gone crazy. “She’s just calling me over and over and texting my son,” Tyrner said in an interview. “‘SVB is going under,'” her partner texted, Tyrner said. “‘We have to get our funds out, please approve this transfer.'”
Tyrner became frustrated when he discovered that the bank’s website was down. “My heart stopped,” he said. As of Friday, the FarmboxRx funds were still tied up with Silicon Valley Bank.
“‘My bank is going under’ had never crossed my mind,” he said.
The fate of Silicon Valley Bank raised new questions about the funding environment just as some bright spots were emerging, particularly for AI startups, amid the dire fallout of 2022 that led many tech companies to cut senior positions. work and reduce spending on riskier projects.
Brex, another fintech startup, said it is offering an emergency bridging line of credit to startup clients to support payroll and other operating expense needs in light of the situation.
Arjun Sethi, co-founder of venture firm Tribe Capital, sent a sobering note to clients on Friday that he shared on social media. “The risk ecosystem is wandering in the desert. Liquidity is dry,” he wrote. “Keep your assets in the most liquid traditional banks and don’t take unnecessary risks.”
