SVB shutdown sends shockwaves through Silicon Valley as CEOs race to make payroll (updated)

Cato

11/03/2023 24:44

(Adds comment from venture capitalists)
    By Greg Bensinger, Anna Tong, Krystal Hu and Jeffrey Dastin
       March 10 (Reuters) - The sudden collapse of Silicon
Valley Bank on Friday sent shockwaves through the startup
community, which has come to view the lender as a source of
reliable capital and deposit partner, particularly for some of
tech’s biggest moonshots.
    On Friday, tech CEOs scrambled to make payroll after SVB
Financial Group  SIVB.O  was shuttered by California banking
regulators in a bid to protect depositors following a dive in
the value of its investment holdings and a rush of withdrawal
requests starting just two days ago.
    The bank was seeking a sale, sources told Reuters, and
trading in its shares was halted after they plummeted 60% late
Thursday.
    Startups with money held at Silicon Valley Bank raced to
come up with plans to pay workers after hearing their funds
would be locked up over the weekend, said Jai Das, president at
Sapphire Ventures, whose investments have included Box and
LinkedIn. 
    "Some of the folks have moved their money out of SVB to
other banks," he said. "Hearing CEOs who are figuring out ways
to use their own capital or own funds to fund some of the
payroll."
    VC investors are discussing solutions for startups that have
funds stuck with SVB and struggling to process payroll to
employees and vendors, including offering a line of credit to
portfolio companies.
    "That's the number one conversation and the one thing people
can actually do something about right now," said Pegah Ebrahimi,
Managing Partner at FPV Ventures. "I think institutions, VCs,
and babies have to come together to solve this short-term
liquidity squeeze and help otherwise resilient companies have
access to funds to make payroll."
    Dean Nelson, CEO of Cato Digital, was on a line outside of
SVB's Santa Clara headquarters, hoping to get answers. He said
he was worried about the company's ability to pay employees and
cover expenses.
     "Access to the cash is the biggest problem for the majority
of the companies here. If you’re a startup, cash is king. The
cash and the workflow, to be able to have the runway is
critical."
    At some Silicon Valley Bank branch locations in California,
depositors gathered early Friday to attempt to get their cash
out, fearing it could be inaccessible in the coming days. And at
some sites the doors were locked and cursory notes were found
advising customers to try elsewhere.
    At a Menlo Park, California, branch, customers were greeted
by a taped up press release apprising them the bank had moved
into receivership and would be known as Deposit Insurance
National Bank of Santa Clara.
    The bank has been central to the formation of many early
stage companies due to its reputation for taking bets on
startups that may have had little chance of survival otherwise
and for which larger banks may find far too risky. It has had
financial relationships with a who’s who of Silicon Valley firms
over the years, including Snapchat's parent Snap Inc  SNAP.N .
    The full extent of the fallout from the bank's crash could
take weeks or months to gauge and might presage a period of more
cautious investing in technology startups. 
    A Silicon Valley Bank spokeswoman didn't 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 control of the regulator.
     
    'HEART STOPPED'
    The speed of the bank’s precipitous decline caught the
startup community by surprise.
    Ashley Tyrner, CEO of startup FarmboxRx, was on vacation
with her family in Costa Rica Thursday afternoon when she said
she started getting frantic text messages from her chief
operating officer, who had initiated an eight-figure wire
transfer, completely emptying their Silicon Valley Bank account.
    Tyrner said she wondered if her co-founder had gone mad.
"She's just pinging me over and over and texting my kid," Tyrner
said in an interview. "'SVB is going under,'" her partner
texted, said Tyrner. "'We have to get our funds out, please
approve this wire.'"
    Tyrner was thwarted when she discovered the bank’s website
wasn’t working. "My heart stopped," she said. As of Friday,
FarmboxRx’s funds were still tied up with Silicon Valley Bank.
    "'My bank is going to go under' had never crossed my mind,"
she said.
    The fate of Silicon Valley Bank cast new doubts on the
funding environment just as some bright spots were emerging,
particularly for artificial intelligence startups, amid the grim
fallout of 2022 that led many technology companies to trim jobs
and pare back spending on riskier projects.
     Brex, another fintech startup, said it is offering an
emergency bridge credit line to startup customers to support
payroll and other operational spending needs in light of the
situation.
    Arjun Sethi, a co-founder of venture firm Tribe Capital,
sent a sobering note to clients Friday that he shared on social
media. "The venture ecosystem is wandering in the desert.
Liquidity is dry," he wrote. "Hold your assets in the most
liquid traditional banks, and do not take unnecessary risks."

 (Reporting by Greg Bensinger, Anna Tong, Krystal Hu and Jeffrey
Dastin; additional reporting by Stephen Nellis; editing by
Kenneth Li, Anna Driver & Shri Navaratnam)
 ((mailto:greg.bensinger@thomsonreuters.com; Reuters Messaging:
@gregbensinger))