On Thursday, after reading about financial instability at the bank, she rushed to move FarmboxRx’s money into two other bank accounts. Her wire transfers didn’t go through. And on Friday, Silicon Valley Bank collapsed, tying up cash totaling eight figures for her company, which delivers food to Medicare and Medicaid participants.
“None of my reps will call me back,” Tyrner said. “It’s the worst 24 hours of my life.”
Her despair was part of the fallout across the startup ecosystem from the failure of Silicon Valley Bank. Entrepreneurs raced to get loans to make payroll because their money was frozen at the bank. Investors doled out and asked for advice in memos and on emergency conference calls. Lines formed outside the bank’s branches. And many in the tech industry were glued to Twitter, where the collapse of a linchpin financial partner played out in real time.
The implosion rattled a startup industry already on edge. Hurt by rising interest rates and an economic slowdown over the past year, startup funding – which had been supercharged by low interest rates for years – has shriveled, resulting in mass layoffs at many young companies, cost-cutting and slashed valuations. Investments in U.S. startups dropped 31% last year to $238 billion, according to PitchBook.
On top of that, the fall of Silicon Valley Bank was especially troubling because it was the self-described “financial partner of the innovation economy.” The bank, founded in 1983 and based in Santa Clara, California, was deeply entangled in the tech ecosystem, providing banking services to nearly half of all venture-backed technology and life-science companies in the United States, according to its website.
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Silicon Valley Bank was also a bank to more than 2,500 venture capital firms, including Lightspeed, Bain Capital and Insight Partners. It managed the personal wealth of many tech executives and was a stalwart sponsor of Silicon Valley tech conferences, parties, dinners and media outlets. The bank was a “systemically important financial institution” whose services were “immensely enabling for startups,” said Matt Ocko, an investor at venture capital firm DCVC.
On Friday, the Federal Deposit Insurance Corp. took control of Silicon Valley Bank’s $175 billion in customer deposits. Deposits of up to $250,000 were insured by the regulator. Beyond that, customers have received no information on when they will regain access to their money.
That left many of the bank’s clients in a bind. On Friday, Roku, the TV streaming company, said in a filing that roughly $487 million of its $1.9 billion in cash was tied up with Silicon Valley Bank. The deposits were largely uninsured, Roku said, and it did not know “to what extent” it would be able to recover them.
Josh Butler, CEO of CompScience, a workplace safety analytics startup, said he was unable to get his company’s money out of the bank on Thursday or before the bank’s collapse on Friday. The past day, he said, had been nerve-wracking.
“Everyone from my investors to employees to my own mother are reaching out to ask what’s going on,” Butler said. “The big question is how soon will we be able to get access to the rest of the funds, how much if at all? That’s absolutely scary.”
CompScience was pausing spending on marketing, sales and hiring until it solved more pressing concerns, such as making payroll. Butler said he had been prepared for a big crunch, given the doom and gloom swirling around the industry.
But “did I expect it to be Silicon Valley Bank?” he said. “Never.”
Camp, a startup selling gifts and experiences for children, added a banner to its website on Friday that read: “OUR BANK JUST CLOSED – SO EVERYTHING IS ON SALE!”
The site offered 40% off with the promo code “bankrun” alongside a meme that included the words “i never liked the bay area” and “how could this happen.” A Camp representative said the sale was related to Silicon Valley Bank’s collapse and declined to comment further.
Sheel Mohnot, an investor at Better Tomorrow Ventures, said his venture firm advised its startups on Thursday to move money into Treasurys and open other bank accounts out of prudence.
“Once a bank run has started, it’s hard to stop,” he said.
Some of the startups that Mohnot’s firm has invested in chose not to move their money, while others were unable to act in time before the bank failed, he said. Now their biggest concern was making payroll, followed by figuring out how to pay their bills, he said.
Haseeb Qureshi, an investor at Dragonfly, a cryptocurrency-focused venture capital firm, said his firm was counseling several of its startups that had funds tied up in Silicon Valley Bank.
“The first thing you think about is survival,” he said. “It’s a harrowing moment for a lot of people.”
Non-tech startups were also grappling with the fallout. Vox Media, publisher of New York Magazine and The Verge, has a substantial concentration of cash at Silicon Valley Bank, a person briefed on the company’s holdings said. The company’s credit cards, which Silicon Valley Bank issued, stopped working Friday.
A person familiar with Vox Media’s operations said the company didn’t expect any disruption to its business, including payroll. Penske Media, Vox Media’s largest shareholder, said in a statement that it was ready if the company required additional capital but added that it didn’t foresee any issues.
Other startups were benefiting from the bank’s collapse. On Friday afternoon, Brex, a provider of financial services to startups, unveiled an “emergency bridge line of credit” for new customers migrating from Silicon Valley Bank. The service was aimed at helping those startups shore up expenses such as payroll.
For part of Thursday, Brex received billions of dollars in deposits from several thousand companies, a person with knowledge of the situation said. The company rushed to open accounts as fast as possible to meet demand, with its CEO reviewing applications, the person said.
But by Thursday afternoon, the incoming deposits to Brex slowed to a halt, as founders began reporting that Silicon Valley Bank’s online portal had frozen and customers were no longer able to access their money, the person said.
Many venture capital firms had also used lines of credit with Silicon Valley Bank to make investments quickly and smoothly, Ocko of DCVC said. Those lines of credit are now frozen, he said.
Ocko added that he did not foresee systemic collapse among startups and tech, but predicted “pain and friction and uncertainty and complexity in the middle of what’s already a painful macro environment for startups.”
To stave off any taint from Silicon Valley Bank, some venture funds blasted updates to their backers. Sydecar, a service that facilitates venture capital deals, shared a list of the banks it uses that were not affected. Origin Ventures promised to help companies “create contingency plans around working capital.”
Another venture firm outlined its exposure to Silicon Valley Bank and apologized in a memo, saying, “This is the worst email I’ve ever had to write to you.” The memo was seen by The New York Times.
Entrepreneurs also weighed into group chats with the dollar amounts that they could no longer tap at Silicon Valley Bank or what they had managed to pull out, ranging from hundreds of thousands to tens of millions, according to communications viewed by the Times.
A trickle of customers walked up to Silicon Valley Bank’s branch in Menlo Park, California, on Friday afternoon and discovered that its doors were locked. Some read an FDIC notice, taped by the entrance, that said the regulator was in control.
One person who tried the doors was carrying a Chick-fil-A bag. A woman in the office cracked a door open, asked who the person was and then took the bag with a smile. Then she pulled the door shut.
