As the founders scrambled to run payroll after SVB shut down, some VC firms pledged to help, but very little was actually transferred.
Last Friday afternoon, OpenAI CEO Sam Altman issued a challenge to Silicon Valley venture capitalists. “Investors asking, ‘How can I help you?’: Today is a good day to provide emergency cash to startups in need on payroll or otherwise,” he said Altman. murmured“No paperwork, no conditions, just send money.”
In the wake of the Silicon Valley Bank incident Sudden closure that morningAltman’s message hit a big question for both tech entrepreneurs and investors: If SVB’s deposits are frozen, how will they pay their employees the following week?
That crazy weekend saw venture capital firms scrambling to respond to the crisis. Some found creative ways to help founders have access to cash on Mondays, others offered their partners personal funds. It set up an emergency to do and hoped it would never happen.
The moment passed almost quickly. The FDIC has announced that it will secure all his SVB deposits by Sunday night. That means by Monday morning the urgency of the situation and the need for VC firms to back their promises has passed. However, some still wire the funds. Founders caught in a crisis never forget who stepped up and who failed at the crucial moment.
In conversations with about 20 investors and founders, non-traditional investors like Altman and smaller, individual-driven companies like Jason Lemkin’s SaaStr Fund are using creativity in problem-solving, including First. It was suggested that it appears to move the fastest, alongside several large companies that have demonstrated rounds and redpoints. But most established companies were less than impressive.
Billionaire investor Binod Khosla said, “Sadly, we have received requests from very minor-positioned companies that are not backed by major investors.” said on Twitter“Other investors are predatory. It’s not the time to make money.”
Loans, Equities and Wires in the SVB Aftermath
When Alex Lorestani, CEO of Geltor, a startup that offers vegan protein to beauty product makers, started getting emails from investors last Thursday, most of them were just words. “They just asked, ‘Hey, are you exposed?'”
Geltor isn’t small — it raised $91 million in 2020 — but was Exposed, its payroll funds are tied up with the SVB, and attempts to transfer money to Mercury are still pending. But when Lorestani informed his employees, his more than 100 investors sought help from unexpected places. Fifty he’s Years, a newer company smaller than many of his fellow founders with cash to spare and $90 million in funding. Both have set up wired loans to send on Monday. They were then blocked as potential scams, at which point Ela Madej, the founding partner of Fifty Years, connected her bank account to her Geltor payroll system, allowing employees of the company to I paid for myself.
“It was funny,” said Lorestani. forbes“It set a new standard.”
Meanwhile, over the weekend, Madej’s partner Seth Bannon tweeted to call out other VC firms who said they were not allowed to provide loans due to limited partner agreements. “Yes, you can. Don’t use LP money,” Bannon said. I have writtenHis tweet was endorsed by Khosla, who wrote that his company, Khosla Ventures, is also looking to use the partners’ own money to help.
Khosla Ventures ultimately did not need to make the loan, said partner Samir Kaul. forbes, but was hampered by the reactions of other established companies. This was not the time to point fingers. It’s time to take our founders to the other side and fight,” he said. “Even in tough times, we stick with the company.”
Another big company that has caught the eye of its peers is Redpoint, whose partners Alex Bard and others texted the founders before the weekend to say they would find a solution, set up another entity, and if necessary I transferred my partner’s funds there to be redirected. The promise inspired his Sahil Mansuri, another founder of Bravado, a site for salespeople, to share his own message. tweet thread“It was an extraordinary measure of compassion and support for entrepreneurs during a dire time,” Mansuri said. forbesHe never received the money in the end, nor did the Redpoint founder. (Greylock launched a similar fund, but according to one of his founders, it never got access.)
When the founders tried to navigate SVB’s website on Monday, they got mixed results. forbes They said they sent a small check. Kleiner Perkins took out one of his loans and it was repaid within 24 hours. According to his partner Matt Murphy, Menlo Ventures also said he wired one, but there was no timeline for a return.
First Round was probably the most active company, two sources said.Of the early-stage firm’s more than 200 investments, 80 had money in SVB, one said forbes, and 40 faced salary problems. With the LP’s permission, the first-round partner made a low-interest loan to the company, with its own cash tied up in the SVB, but made several wire transfers on Friday and another 10 or more on Monday. I did. (A source close to the company said such efforts paled in comparison to what some of the company’s founders did, such as first flying to California to withdraw money on Monday.)
Most Others Disclosed by Investors and Founders forbesor those responding to requests for comment, said they were prepared to wire loans in some capacity but were not required to do so, a group that includes Accel, Benchmark and Index Ventures. Other firms, including Lux Capital and Sequoia, were still evaluating options when the decision was announced, the sources added.
Among the companies associated with Thursday’s bank, the reason the SVB was carried out was reportedly After warning the founders to withdraw the funds, Coatue was prepared to provide the loan but did not, a source said. On the other hand, Union Square Ventures forbes Offered an interest rate of 4.5%. According to the company, this is the lowest statutory interest rate applicable to short-term loans. The loan could be converted into preferred stock from the company’s most recent past funding round, or at an 80% price he could move into the next $2 million or more in equity financing, according to documents.
USV’s proposal was also ultimately not used by the founders, partner Rebecca Kaden said. forbes on mail. “We were in close contact with the company until Monday morning to confirm that the pipes were working again and that they were all making sure they were getting their salaries out of their accounts,” she wrote.
“From speaking with other founders, I can’t believe that many VCs could have done anything this useful this weekend.”
Founders Fund, on the other hand, came under intense scrutiny, in part because of its ties to public opinion lightning rod Thiel. Some accused of facilitating bank runs (actually, other companies had warned founders about her SVB) long ago), eventually Teal said to FT Confident of the bank’s long-term viability, he deliberately left SVB with $50 million over the weekend. mentioned by the trader.
“They say, ‘We’re not in the business of making loans. That’s not our problem. But we buy more stocks,'” said Founders Fund and portfolio companies. Company spokesperson Erin Gleason said the Founders Fund does not offer stock-based convertible bonds, known as SAFEs, to companies affected by the SVB. rice field.
“Company financial management is ultimately the responsibility of the founder/CEO,” said Founders Fund investor Delian Asparouhov. murmured Saturday. “Never forget it.”
Some founders generally raised additional funding in their last funding round, multiple investors said. forbes Given stock prices in 2023, such a move could easily have been more generous. said he was familiar with the normal work of VCs. “The whole idea of venture funds is not to lend assets without collateral.”
A longer crisis averted and an uncalled bluff
Had the FDIC not guaranteed deposits on Sunday and the bank run had spread to other startup banking partners, VC firms would have been in trouble. Instead, how do dozens or hundreds of companies really respond when faced with business disruptions and where founders and directors are personally held personally responsible for their employees’ salaries? “I don’t think it’s just a signal of virtue,” said Michael Goldstein, a professor at Babson College. will be.”
A few founders we spoke with forbes I wondered if the companies exaggerated their willingness to help because they expected the government to render such efforts moot. “Speaking with other founders, I can’t believe that many VCs could have done anything as profitable this weekend,” said one tech CEO. “Even the good-hearted people weren’t really interested in the number of companies affected. So it was up to the founders to rally resources and elicit as much support as possible.” .”
Some investors, particularly fund managers who do not have sufficient funds to provide personal means or financial support, will instead look for updates on the government’s response and alternative financing sources such as the Brex weekend emergency fund. was focused on providing
“Everything was moving so fast that we had no choice but to talk to founders and VCs,” said founder Jordana Stein, CEO of executive peer learning startup Enrich. A popular founder WhatsApp group that quickly hit her 1,024 member limit on the app. Others turned to email her groups like Signal and WhatsApp groups, or her CEO distribution list on A16Z. (The company declined to comment on whether it provided the founder with a loan.)
But investors who did make wire transfers, mostly from smaller partnerships and non-traditional funds, said: forbes Doing so was not as difficult as some large corporations would allow. Altman has lined up a number of wires, even though it’s only days away from OpenAI’s massive GPT-4 launch.others forbes Learn sent a number of telegrams, including to Conviction founder Sarah Guo, solo financier Lachy Groom, and former GitHub CEO Nat Friedman. (John Curtius reached out to the startups that backed Tiger Global and asked for help, but despite leaving the company last year to start Cedar Investment Management, several founders There was an honorable mention from , but Mr Curtius’ funds were ultimately not needed.)
“We did it in 60 seconds. It was easy and, to be honest, in a way it was fun, because when you want to add value,” said Lemkin of SaaStr Fund. His funds were also in SVB, but he was able to transfer the founder’s cash from his personal account at Wells Fargo. “I immediately offered and without a second thought reached out and told LP. I think it would be very difficult.”