Silicon Valley Bank customers scramble to meet payroll, pay bills

sudden collapse Silicon Valley Bank Thousands of tech startups are wondering what happened to millions of dollars in deposits, investments in financial markets and outstanding loans.

Most importantly, you’re trying to figure out how to pay your employees.

Ryan Gilbert, founder of startup Launchpad Capital, said: “Nobody has the answer.”

The 40-year-old bank SVB, known for processing deposits and loans for thousands of tech startups in Silicon Valley and elsewhere, collapsed this week, being shut down by regulators in the biggest bank failure since the financial crisis. I was. The demise began late Wednesday when SVB said it was in the red and was looking to raise money by selling $21 billion in securities. By late Thursday, all-out panic had turned into a 60% drop in his stock, with tech executives scrambled to pull the money out.

Bank failures are nothing new, but SVB is a monster of its own. He was the 16th largest bank by asset size at the end of 2022, according to the company. federal reservewith $209 billion in assets and over $175 billion in deposits.

However, unlike Chase, a typical brick-and-mortar bank, bank of america again wells fargo — SVB is designed to serve businesses, with more than half of its loans going to venture funds and private equity firms and 9% to early and growth stage companies. Customers who request loans from SVB also tend to keep their deposits in banks.

The SVB recipient, Federal Deposit Insurance Corporation, guarantees deposits of $250,000 per customer. SVB primarily serves enterprises, so these limitations don’t make much sense. As of December, approximately 95% of SVB’s deposits were uninsured, according to SEC filings.

The FDIC states: press release Guaranteed depositors will have access to their money by Monday morning.

But for uninsured depositors, the process is much more complicated. They will receive a dividend covering the undetermined amount within a week and a “certificate of receipt for the remaining amount of uninsured funds.”

“Future dividend payments could go to uninsured depositors as the FDIC sells Silicon Valley Bank assets,” the regulator said. Normally, the FDIC places its assets and liabilities in the hands of another bank, but in this case it created another agency to process insured deposits, the Santa Clara National Deposit Insurance Bank (DINB).

Clients with over $250,000 in uninsured funds don’t know what to do. Gilbert said he advises portfolio companies individually rather than sending out mass emails because every situation is different. He said the universal concern was meeting payroll on March 15.

Gilbert is also a limited partner in over 50 venture funds. On Thursday, he received a capital call, or a message from several companies regarding money that the fund’s investors will transfer when the transaction takes place.

“We received an email telling us not to send money to SVB. If you let us know,” Gilbert said.

Salary concerns are more complicated than gaining access to frozen funds. This is because many of these services are handled by third parties that have worked with SVB.

Rippling, a back-office-focused start-up, handles payroll services for many tech companies.On Friday morning, the company notified its clients that SVB news said it had “a key element of our payments infrastructure.” JP Morgan Chase.

“You must notify your bank immediately of a material change in how Rippling debits your account,” the note read. “Payments, including salaries, will fail without this update.”

Rippling CEO Parker Conrad said in a series of tweets on Friday that some payments were delayed in the FDIC process.

“Our number one priority is getting our customers’ employees paid as soon as possible, and we are working diligently to do that across all channels available to us, and the FDIC acquisition is today’s top priority,” said Conrad. I’m trying to learn what payment means.

One of the founders, who requested anonymity, told CNBC that everyone is in a panic. He said he had spoken to the finance chief of a billion-dollar startup that had closed. Another firm with 250 employees told him SVB had “all the cash.”

A spokesperson for SVB pointed out to CNBC. FDIC statement when asked for comment.

An immediate goal for the FDIC is to allay systemic risk concerns for the banking system. Mark Williams, teaches finance at Boston University. Williams is well versed in this topic as well as the history of SVB. He previously worked as a bank regulator in San Francisco.

Mr. Williams said the FDIC has always worked quickly to keep depositors safe. He also said there was no apparent reason why customers could not recover most of their funds, as the bank has cash available and its assets are greater than its liabilities, according to SVB’s audited financial reports.

“Banking regulators understand that failure to act quickly to complete SVB’s uninsured depositors poses a significant contagion risk to the wider banking system,” Williams said. rice field.

Treasury Secretary Janet Yellen on Friday met with leaders of the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency regarding the SVB meltdown.The Treasury Department said in a statement read out Prime Minister Yellen said, “I have expressed my full confidence that banking regulators will respond and take appropriate action, the banking system remains resilient, and regulators will be prepared to deal with events of this nature.” We have an effective tool for that,” he said.

On the ground in Silicon Valley, the process has never been smooth. Some executives told his CNBC that they successfully moved the money by making a wire transfer early Thursday. Others who took action later in the day have millions of dollars waiting, in some cases, and are unsure if they will be able to meet their short-term obligations.

Ford Street Ventures partner and Mercury start-up investor Matt Brezina will change the way companies think about banking partners regardless of whether and how quickly they can get back to work said it would.

Brezina said the next biggest issue facing payroll is access to debt facilities, especially for financial technology and labor market companies.

“Companies will become more diverse with their bank accounts,” Brezina said. “This is currently causing a lot of pain and headaches for many founders. And it will hurt customers.”

Williams said SVB’s rapid collapse could also serve as a wake-up call to regulators when it comes to dealing with banks that are concentrated in specific industries. He said SVB has always been overly exposed to technology, even though he managed to survive the dot-com crash and financial crisis.

among them mid-quarter updatestarted a downward spiral on Wednesday, but SVB has sold its securities at a loss and sold its shares at a loss as startup clients continue to burn cash rapidly despite continued slump in fundraising. You said you were raising capital. This meant that SVB struggled to maintain the required level of deposits.

Rather than stick with SVB, the start-up saw the news as troubling and decided to make a hasty exit. The swarm gained momentum as VCs directed their portfolio companies to withdraw their funds. Williams said his profile of SVB risk has always been a concern.

“It’s a focused bet that the industry will do well,” Williams said. “If they weren’t so focused on their deposit base, there wouldn’t have been a liquidity event.”

SVB was started in 1983. written historyconceived by co-founders Bill Biggerstaff and Robert Medealis in the game of poker.

“It started as a result of a poker game,” Williams said. “And that’s how it ended.”

— CNBC’s Lora Kolodny, Ashley Capoot, and Rohan Goswami contributed to this report.

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