It was a harrowing 72 hours for the tech-startup community after Friday’s collapse of Silicon Valley Bank.
“It’s been a roller coaster of emotions,” said Varun Badhwar, CEO and co-founder of tech startup Endor Labs, explaining that he was able to get about $5 million of the company’s funds out of Silicon Valley Bank on Thursday. “That gives us six to eight months of runway,” he told MarketWatch.
Other companies were not so fortunate. “More than half of my friends in the startup community were not able to extract funds from Silicon Valley Bank in time,” Badhwar said. “I literally knew a lot of people that were thinking of getting personal loans collateralized against their own homes to pay their employees on time.”
In some cases, venture capitalists stepped in to help. “There were some members of the VC community lending their own personal money to founders, interest free, to make payments for employees,” Badhwar said.
Things got so dicey for Lindsey Hoell, founder of Dispatch Goods, a company devoted to reducing waste, that she spent Saturday morning driving around with her 2-month-old baby to find a bank branch that would open an account for her so she could print checks to pay her employees.
Before the government stepped in, a generation of tech startups faced an existential crisis that forced some executives to dip into their personal bank accounts to cover payroll costs and other expenses.
For decades, those startups relied heavily on Silicon Valley Bank, a unit of SVB Financial Group
based in Santa Clara, Calif., to process checks and payments and to safeguard their cash. The possibility of its implosion triggered a crisis that could have led to mass layoffs or to the collapse of hundreds of startups, according to Ahmad Thomas, CEO of the Silicon Valley Leadership Group.
“SVB is no ordinary institution. Its health has a contagion effect,” Thomas told MarketWatch. “Large businesses were not just affected, but the fallout effect extended to communities that rely on those businesses. SVB’s failure leaves an extraordinary void here in the valley. They were a lender to startups that could not land financing from traditional sources, and a key driver in the inclusion ecosystem.”
Silicon Valley Bank has among its customers more than 37,000 small businesses that have over $250,000 in deposits, according to the National Venture Capital Association.
“My biggest fear in this collapse is really around the ripple effects from losing one of the largest backers of innovation who has been moving the world forward for the last 40 years,” said Ashley Tyrner, CEO and founder of FarmboxRx. “SVB’s progressive founder-friendly model allowed a lot of entrepreneurs to access the tools that they needed to grow their companies which traditional banking models wouldn’t allow for.”
The ripple effect was wide and potentially calamitous for startup executives.
Cassie Choi, co-founder and chief operating officer of Pair Team, a San Francisco-based administrative platform that streamlines operations in rural or understaffed medical clinics, was forced to pay out of pocket to keep payroll afloat. Her company provides services for people with no access to healthcare.
Champ Bennett, co-founder of the video platform Capsule, shared his entrepreneurial pain in a series of tweets over the weekend. On Friday, he said the $5 million that Capsule raised in mid-February during the company’s first seed-funding round was held at SVB and was inaccessible. “What happens next is anyone’s guess, but it doesn’t look good,” he tweeted.
By Sunday, following governmental action, he had cooled down. “Tomorrow we get to go back to work and deal with the normal (expected) existential risks of building companies,” he said in a tweet.
“It all happened so rapidly,” said Spencer Greene, general partner at TSVC, a venture investor for a few affected startups. “We did some wire transfers on Friday [for millions of dollars] for risk management. Enormous amounts were transferred on Thursday, so we were in an [electronic] queue electronically. It was nerve-wracking, and [that was] our focus for 72 hours.”
Badhwar said that his company, like many others, faced some difficult decisions when Silicon Valley Bank started to founder. “When there’s run on the bank, it’s a tough balance. You don’t want to be part of the problem, but you don’t want to be the last one out without the ability to pay payroll next week,” he said.
Badhwar said that most of his company’s funds remain in Silicon Valley Bank. For two hours on Monday morning, he had been attempting to log onto the bank’s site, without success. Nonetheless, he said he is “cautiously optimistic” after the government stepped in to protect depositors.
“On Friday we were locked out of our [SVB] account,” said John Biggs, who runs a content agency, Typewriter.plus, with his wife.
“It was very scary for me because I’m the HR department, the accountant, and the COO of my little firm,” Biggs said. “That this could happen so quickly was amazing to me. It was the first time I saw something like this happen and I grew up in Communist Poland where things could change overnight. This happened in a few hours.”
Steven Gelsi contributed to this report.