The sudden collapse of a major Silicon Valley lender has tech investors and startups scrambling to understand their financial exposure and the impact on their ability to operate, at a time when many companies were already on edge. widespread layoffs and reduced access to capital. in an uncertain economy.
California regulators closed Silicon Valley Bank on Friday and placed it under the supervision of the United States Federal Deposit Insurance Corporation. The FDIC acts as a receiver, which generally means that it will liquidate the bank’s assets to reimburse its customers, including depositors and creditors.
The move capped an astonishing 48 hours in which uncertainty over the prominent tech lender’s liquidity prompted some startups to weigh the withdrawal of funds and also sparked fears of a contagion risk to the wider world. financial sector.
After Friday’s bank collapse, uncertainty in the startup community has only grown, with founders worrying about withdrawing their money, making payroll and covering operating expenses.
“Now that the bank has closed, I just want to know what happens next,” Ashley Tyrner, founder of health food delivery company FarmboxRx, told CNN in an email. “The FDIC covers 250K, but will I get all of my 8 digits back?”
Parker Conrad, CEO and co-founder of HR platform Rippling, said Friday his company learned that some customers’ payrolls were being delayed due to “solvency challenges” at the bank.
“Our top priority is to get our customers’ employees paid as soon as possible, and we are working diligently to that end through all available channels, and trying to understand what the FDIC takeover means for customer payments. today,” he said. writing on Twitter.
Arjun Sethi, investor at Tribe, tweeted On Friday, “Right now VCs are writing emails to disclose the SVB exposure.” Meanwhile, Sam Altman, CEO of OpenAi and former president of startup accelerator Y Combinator, said investors should consider offering “emergency cash to your startups that need it for payroll or otherwise.”
He added: “no documents, no conditions, just send money.”
At least one company tried to get a quick buck by offering a last-minute sale.
Ben Kaufman, co-founder of toy store and online retailer Camp, said in an email to customers that “most of our company’s cash” is held “in a bank that just collapsed.” In the same email, Kaufman announced a 40% offer on all online merchandise for customers using the code: “BANKRUN”.
“Or you can pay full price without the code – which is also appreciated,” he wrote. Kaufman said all sales from this point forward “allow us to generate the cash needed to continue operations so we can continue to provide unforgettable family memories.”
Even before the collapse, a number of startups reportedly weighed in to get their money out of the bank, according to media outlets and public venture capitalist publications.
Founders Fund, an influential venture capital firm founded by billionaire Peter Thiel, reportedly advised its portfolio companies to withdraw money from the bank. (A representative for the Founders Fund declined CNN’s request for comment.) Tribe Capital, meanwhile, urged companies to be aware of where they keep their money and how they raise funds.
“Any bank with a business model is dead if everyone moves,” Sethi wrote in a note to founders, which he shared on Twitter. “Since the risk is non-zero and the cost, it is better to diversify your risk, if not everything.”
Sethi urged the founders to “keep your assets in the most liquid traditional banks and not take unnecessary risks.” He also recommended that the founders “call every line of debt, close all primary cycles, do it now, and be prepared to make concessions.”
But by the time Tyrner’s company tried to withdraw funds, it was too late, she said.
“The whole SVB system was down,” she told CNN. “We couldn’t log into our accounts, couldn’t contact anyone, their helpline rang to a ‘disconnected’ message or just hung up…none of our account reps were answering calls or emails. ”
Other prominent venture capitalists had called for calm in an apparent attempt to avoid fueling panic. Mark Suster, a partner at venture capital firm Upfront Ventures, urged members of the venture capital community to “speak out publicly to quell the panic” around Silicon Valley Bank, saying in a lengthy Twitter feed that the classic “run on the bank” harms our whole system. »
While urging people to stay calm, however, he added: “I know some have already withdrawn money. I know some advise this. I know it’s scary… What matters is that we don’t have or create mass hysteria.
Villi Iltchev, a partner at Two Sigma Ventures, also said his peers should “support” the bank. “SVB is the biggest provider of capital for tech startups and the biggest supporter of the community,” he said in a statement. Tweeter. “Now is the time to support them.”
The rapidly unfolding fallout at Silicon Valley Bank comes at a difficult time for the tech industry. Rising interest rates have eroded the easy access to capital that has helped fuel soaring startup valuations and fund ambitious, loss-making projects. Venture capital funding in the United States fell 37% in 2022 from a year earlier, according to data released in January by CBInsights.
At the same time, broader macroeconomic uncertainty and recession fears have prompted some advertisers and consumers to cut back on spending, reducing the industry’s revenue streams. As a result, the once high-flying tech world has fallen into a cost-cutting season marked by massive layoffs and a renewed focus on “efficiency.”
The situation at Silicon Valley Bank may have been made worse by more startups feeling cash-strapped and having to withdraw funds. Now, the bank’s collapse risks aggravating the industry’s liquidity crunch and wider turmoil.
In his article suggesting that a bailout might be needed, Ackman said a “failure” of Silicon Valley Bank could “destroy an important long-term engine of the economy, as venture capital-backed companies rely on of SVB for lending and holding their operating cash”.
Ackman compared SVB’s situation to that of Bear Stearns, the first bank to collapse at the onset of the 2007-2008 global financial crisis. But this time trouble is brewing in the backyard of Silicon Valley.
– CNN’s Allison Morrow contributed to this report.