- The collapse of Silicon Valley Bank has left hundreds of startups with a liquidity crunch and a wage crunch.
- A popular toy store held a 40% discount to raise funds.
- Their best hope for paid staff is finding a buyer for the SVB before the markets open on Monday.
Hundreds of startups face a massive liquidity crisis as the search for a buyer for Silicon Valley Bank drags on into the next week.
The Federal Deposit Insurance Corporation (FDIC) took control of SVB on Friday after it was shut down by California regulators when a failed $2.3 billion capital raise sent the stock plummeting.
It leaves hundreds of banked startups in turmoil as they attempt to continue operations while millions of funds are locked up.
Meanwhile, SVB’s business customers are showing the first signs of stress.
Startups fight for money
The need for startups to do payroll is mirrored throughout the VC ecosystem.
In a tweetFounder Nikita Bier: “The number of companies in the growth phase that had their money from the SVB is huge.
Sam Lessin, a partner at Slow Ventures, told CNBC on Friday that a founder he spoke to planned to handle payroll personally and “figure it out from there.”
Even startups that didn’t have direct bank with SVB were hit by their collapse. My Insider colleagues April Joyner and Madeline Renbarger reported that healthtech startup Flow used Health Rippling, which had an account with SVB, as its payroll provider.
“We literally have no way of paying employees right now,” Flow Health CEO Alex Meshkin told Insider.
Some startups took drastic steps on Friday to try to make money. Popular toy store Camp told customers it was in distress after its funds were trapped by the collapse.
“All of our cash was with SVB and we’re trying to build our balance with Chase,” camp CEO and co-founder Ben Kaufman told Insider via a Twitter direct message.
The company announced a 40% discount to collect cash from its customers and instructed them to use the tongue-in-cheek code “BANKRUN” at checkout.
The impact of the SVB’s demise is likely to be far-reaching. According to its website, the bank backed nearly half of US venture-backed startups at the end of December.
In a tweetStartup Accelerator Y Combinator CEO Garry Tan said the collapse of SVB is “an *extinction level event* for startups and will set back startups and innovation by 10 years or more.”
He told the Wall Street Journal that a poll Friday of his roughly 3,000 active companies found nearly 400 had a relationship with SVB and more than 100 feared they might not be able to do payrolls in the next 30 days if the situation would not be resolved quickly. Tan urged people to contact their congressman to voice their concerns.
A buyout offers a way out
Depositors with SVB have $250,000 of their cash insured with the lender, and that cash should be available no later than Monday. The rest is uninsured. Given that many founders and startups have had millions at SVB, there are enormous amounts at stake. Roku, for example, had nearly $500 million deposited with SVB.
The FDIC said Friday uninsured depositors will receive a receivership certificate for the remaining funds, but it’s unclear when they will have access to the cash or how much of it will be returned. Moody’s estimates that customers will recoup about 80 to 90 cents on every dollar of uninsured deposits.
These startups’ best hope is finding a buyer for SVB before markets reopen on Monday. If no one wants it, the FDIC will liquidate the bank and sell its assets to try to bail depositors back to health.
“The FDIC will love to have the bank bought out of their hands and I’m sure they’ll be working flat out over the weekend to arrange a shotgun marriage,” said Sandeep Dahiya, associate professor of finance at the McDonough School of Business from Georgetown University, opposite me colleague Hayley Cuccinello.
In an interview with The Information, Kristine Dickson, CFO of community lender Lead Bank, said it would be “2,000 times better” if a buyer were found for SVB rather than liquidating it.
“It’s a million times better to go in that direction, so that’s what they’re going to focus on this weekend,” she said.
Potential buyers will likely sift through the SVB accounts while considering a purchase. Big banks like Goldman Sachs and JPMorgan and regional lenders like Citizens Bank have been suggested as potential SVB saviors.
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