- Silicon Valley Bank was shut down by US regulators on Friday.
- The founders rushed to withdraw the money from the bank. Even those who did not do business with SVB were injured.
- Insider spoke with 8 founders about how they responded to SVB’s collapse.
It was a chaotic day for the startup world following the failure of Silicon Valley Bank.
According to its website, nearly half of all US venture-backed startups use the bank’s services, and amid its implosion, many of them have scrambled to secure their company funds. Even some founders whose startups have not done business with SVB have suffered the fallout, with money to meet their payroll now at risk.
Insider spoke with eight startup founders about how they are responding to the crisis.
“We need to withdraw our money as soon as possible”
Some founders sensed disaster on the horizon and sought to withdraw their funds immediately. As the share price of SVB’s parent company, SVB Financial, fell on Thursday, venture capital firms such as Founders Fund and Y Combinator advised founders to withdraw most of their funds from the bank. .
Bruno Faviero, co-founder and CEO of crypto token management startup Magna, heeded these early warnings. Magna had recently opened an SVB account and Faviero had a welcome call scheduled with the bank on Thursday afternoon. Ten minutes before the scheduled appointment, the bank canceled the call, citing an “urgent customer situation”.
“I went to our chief operating officer and said, ‘We need to get our money out as soon as possible,'” he said. Magna transferred its funds in SVB to another of its accounts with fintech firm Mercury, just before concerns about a bank run began to mount.
Other founders weren’t so lucky: they still had their company funds at Silicon Valley Bank when the FDIC announced it had taken over the bank.
Donnel Baird, the founder of climate tech start-up BlocPower, found himself figuring out how to transfer funds during a flight with a faulty Wi-Fi connection. Although SVB was not BlocPower’s main bank – the company had less than a month’s payroll in its account, Baird said – it was desperate to get its money out.
“I persuaded my stewardess to re-enable the internet on the plane,” he said. “Then I sat in the airplane lavatory for 40 minutes trying to move funds.”
Take the eggs out of the basket SVB
Baird and several other founders told Insider that they had long sought to avoid keeping their eggs in one basket, so to speak, and held accounts for their companies at multiple banks.
Raj Mahal, the CEO of PlanMoreTrips, said that after Brex closed his company’s account during the small business fintech startup’s withdrawal, he decided to open accounts at several banks to mitigate risk. of a sudden closure.
Following the Silicon Valley Bank collapse, he said, “it saved us because we were able to quickly transfer our money without having to wait to set up a new business bank account at another bank.”
Similarly, Madison Maxey, CEO and founder of Loomia, which makes e-textiles, told Insider that her company has accounts with multiple banks and is in the process of moving funds out of SVB. “It’s not fun, but it’s not the end of the world,” she said.
A few early-career founders told Insider that they don’t have accounts with Silicon Valley Bank. Torben Friehe, CEO and co-founder of Wingback, which provides software-as-a-service companies with pricing tools, said the process of getting a company credit card was much longer with SVB than with fintech startups such as Brex and Mercury.
“SVB was like the Wells Fargo of start-up banking,” he said. “It’s no longer a modern solution.”
Thomas Rouffiac, co-founder and chief operating officer of electric vehicle battery materials startup Natrion, said he didn’t see what advantages Silicon Valley Bank offered over other traditional banks. “Especially when we started on the East Coast,” he said, “the norm was always ‘Go straight to Chase’.”
Mourning a pillar of the startup ecosystem
But most of the founders who spoke with Insider lamented SVB’s failure and expressed concern about its possible impact. “SVB is not a small community bank,” Ashley Tyrner, founder of FarmboxRx, told Insider. “As a CEO, there’s no book to prepare you for this.”
Maxey, the founder of Loomia, said she was disappointed with the widespread panic that preceded the bank’s collapse.
“This urgency was not helped by investors who went into a frenzy and orchestrated a bank run,” she told Insider. “If the investment community thought it was beneficial to keep an institution alive over an individualized goal of protecting only their own businesses, I’d like to think we could have avoided the biggest bank shutdown since 2008.”
The negative consequences extend beyond SVB’s direct customers. Healthcare tech startup Flow Health, for example, used Rippling, which held an account with SVB, as its payroll provider. Amid the fallout, the company was unable to process Flow Health’s payroll.
“We literally have no way to pay employees right now,” Flow Health CEO Alex Meshkin told Insider.
Meshkin said his team is exploring other payroll services outside of Rippling to get payroll up and running and also exploring legal options.
SVB’s failure could even affect the personal lives of some founders, wrote on Twitter Brad Hargreaves, founder and president of coliving startup Common. Many founders have turned to SVB for personal banking, he said.
Faviero. The Magna CEO agreed: “As people get older and their companies get older, they need things like risky debt, mortgages. I know of founders who have said that SVB is the only one who wants to give them a mortgage.”
Bianca Chan and Carter Johnson contributed to this report.