SAN FRANCISCO – The sudden collapse of Silicon Valley Bank (SVB) on Friday sent shockwaves through the start-up 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 chief executives scrambled to make payroll after SVB 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.
Start-ups with money held at SVB raced to come up with plans to pay workers after hearing that their funds would be locked up over the weekend, said Mr Jai Das, president at Sapphire Ventures, whose investments included LinkedIn and cloud firm Box.
“Some of the folks have moved their money out of SVB to other banks,” he said, adding that some CEOs “are figuring out ways to use their own capital or own funds to fund some of the payroll”.
Venture capital (VC) investors are discussing solutions for start-ups 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 is the No. 1 conversation and the one thing people can actually do something about right now,” said Ms Pegah Ebrahimi, managing partner at FPV Ventures. “I think institutions, VCs and banks have to come together to solve this short-term liquidity squeeze and help otherwise resilient companies have access to funds to make payroll.”
At some SVB branch locations in California, depositors gathered early on Friday to attempt to get their cash out, fearing it could be inaccessible in the coming days. At some sites, the doors were locked and cursory notes were found advising customers to try elsewhere.
The bank had been central to the formation of many early-stage companies due to its reputation for taking bets on start-ups that might have had little chance of survival otherwise and for which larger banks might find far too risky. It had had financial relationships with a who’s who of Silicon Valley firms over the years, including Snapchat’s parent Snap Inc.
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 start-ups.
The Federal Deposit Insurance Corporation said on Friday that insured depositors would regain access to their deposits no later than Monday, when branches reopen under the control of the regulator.
Brex, a fintech start-up, said it was offering an emergency bridge credit line to start-up customers to support payroll and other operational spending needs in the light of the situation. REUTERS
