Venture capitalists and technology executives are scrambling to understand and explain the potential impact of Friday’s sudden Silicon Valley bank implosion.
Federal Deposit Insurance Corporation (FDIC) said Friday US federal regulators shut down Silicon Valley Bankhas been a leading financial institution for tech startups in Silicon Valley for the past 40 years. The SVB failure is the biggest bank failure since the 2008 global economic crisis.
Many venture capitalists and tech executives expressed shock at CNBC, with some comparing SVB’s collapse to Lehman Brothers, which filed for bankruptcy in 2008. Many of the investors and executives requested anonymity because they were discussing issues that could affect the company and its employees.
A common sentiment is that SVB has failed to communicate with its clients. announced It announced Wednesday that it would sell about $21 billion worth of assets while raising $500 million from venture firm General Atlantic for a loss of $1.8 billion. One VC said people seemed to remember Lehman Brothers when SVB announced the funding and at the same time essentially said that everything was “going well.”
“Unfortunately, they made a mistake in history. Anyone who lived through that era said, ‘They may not be well. Last time I was told that.’ said VC.
The SVB spent late Thursday night trying to assuage concerns about its financial unsoundness.
In one of the e-mails SVB sent to customers, a copy of which was obtained by CNBC, the bank characterized the rumors about the issue as “market talk about SVB” and sent customers to “a series of strategic actions. I tried to reassure you that I have started Strengthen our financial strength, improve profitability and improve our financial flexibility now and in the future. “
“Business as usual at SVB,” the bank said in an email to the startup. At the end of the email, he added, “Additionally, we have a 40-year history of navigating bear and bull markets and have developed key risk mitigation capabilities to ensure long-term financial health. rice field.”
Another venture capitalist said SVB representatives called their company on Thursday to ease their fears, but the company’s CFO “didn’t find it reassuring, to say the least.” said.
But one tech CEO sympathized with the bank’s plight and asked: The prisoner’s dilemma problem… At that moment everyone has to imagine what the other person is going to do. “
When asked for comment, an SVB representative told CNBC, referring to the FDIC’s announcement, adding that “the FDIC will share additional information as it becomes available.”
“Twitter Driven Bank Runs”
Some venture capitalists immediately told investee companies to move their funds from Silicon Valley Bank to other banks such as Merrill Lynch, First Republic and JP Morgan.
An AI startup executive said the company’s chief financial officer has enough cash to handle the situation quickly and pay employees on time. Still, the SVB bankruptcy said it felt like “unnecessary hysteria”.
“We are disappointed in our ecosystem,” said the startup CEO.
Many venture capitalists agreed with startup CEOs that SVB’s demise felt like a self-fulfilling prophecy created by needless panic. Some have likened it to a “Twitter-driven bank run,” as the tech community took to social media to disseminate information and often panicked. One of his prominent tech CEOs is on his CNBC, many startup founders use his Twitter, metaWhatsApp, the communication service of , sends breaking news to each other.
One venture capitalist said it was as if someone had yelled, “Fire in a crowded, unlit theater.”
“And as everyone rushes to the door, oil lamps are knocked over, fires start, and buildings burn down,” said the venture capitalist. “And that same person [is] Stand outside and say, ‘Look, you said that.'”
‘Everyone is scrambling’
As the panic spread and the FDIC intervened, businesses with frozen funds were reporting cash withdrawals and payroll problems.
“Everyone is panicking,” one of the startup’s founders told CNBC. He said he has spoken with more than 30 of his other founders, and both large and small businesses are affected.
The founder added that the CFO of the unicorn startup tried to move more than $45 million out of SVB to no avail. Another company with 250 employees told its founders that SVB has “all the cash.”
Another founder said her company’s payroll provider moved from SVB to another bank on Thursday. She said she has been over-communicating with employees to mitigate their concerns as much as possible and expects paychecks to accrue by the end of Friday.
If not, the company plans to transfer funds directly to employees who need immediate spot coverage, according to an internal memo seen by CNBC.
“Many people live at the expense of the dollar for their budgets and cannot afford a 24-hour delay in paychecks,” the founder said.
Payroll service provider Rippling notified some customers on Friday that payments would be delayed due to an “unexpected solvency problem” at the bank, CEO Parker Conrad said. wrote in a tweetThe company accelerated its plan to switch from SVB to JPMorgan Chase & Co. but didn’t make it in time to avoid falling behind in payments.
Aaron Rubin, CEO of e-commerce logistics startup ShipHero, said he was forced to manually pay some employees on Friday because his company relies on Rippling for payroll services. rice field.
“This morning we found that no one was paid,” he said. “We didn’t have time to manually send out payments to everyone, so we started manually paying our warehouse employees.”
Warehouse staff make up about a third of ShipHero’s 600 employees, Rubin says. The rest of the staff, which primarily includes customer service and tech employees, will be paid next week.
“Our concerns are long-term,” Rubin added. “Maybe some customers have liquidity issues? I don’t think we know the ripple effect yet. Is not it?”
On Thursday, Jean Yang, founder and CEO of surveillance firm Akita, attempted to complete an online wire transfer to ensure payroll for his seven-person team, but was unable to make such a transaction before then. I realized that I can’t. She drove to her SVB location on Sandhill Road in her Park in Menlo, which is lined with her Venture Capital offices.
So she asked the teller to make a bank transfer, but was told that the branch could not do it. So she requested a check for $1 million. After 20 or 25 minutes the bank handed it over.
Others in line were taking out all their balances. “Now I regret not paying all our balances,” she said.
On Friday, Yang returned 15 minutes before the Silicon Valley Bank branch opened to withdraw the rest of the money. There was a line of about 40 people. Rumors spread among those waiting. One person showed a tweet on the phone suggesting bank employees were told not to come to work. (Reuters It was reported in a company memo to this effect. )
An employee then came out of the office and provided about 15 copies of the FDIC’s article on the agency’s response to the banking situation. Once people realized the bank’s fate, the call was lifted.
Later on Friday, one of the startup’s investors called Yang and offered to help with Akita’s payroll, she said. “My hope is that the government will bail out those who have made over $250,000,” she said. “I know tens of millions, hundreds of millions of people [of dollars] in SVB. If they only get $250,000, I think their company will die. “
“Now everyone is waiting for Treasury to intervene,” said another venture investor. “Hopefully [California Gov.] Gavin Newsom is now calling Biden to say, “This is systemic in our area, but we can see the ripple effect on other banks and their stocks and bonds.” If anything, I think the Treasury will step in, like in 2007 or 2008, to protect financial market accounts and protect depositors. “
The person added, “If they don’t intervene, people will assume that the money is lost. It will have a big impact on the business environment.”
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