The tech industry avoided an “extinction event,” but it’s not unscathed
(CNN) For much of the weekend, Silicon Valley struggled to find a way through what one prominent tech investor described as an “extinction-level event for startups” following the collapse of a top industry lender.
Startups race to get loans venture fund and fintech companies to do payroll. Venture capital-backed retailers held last-minute sales to bolster their cash reserves. And at least one prominent startup accelerator convinced thousands of CEOs and founders to sign an “urgent” petition urging Treasury Secretary Janet Yellen and others to offer “relief.”
Then, late Sunday, federal officials stepped in to guarantee that all customers of the failed Silicon Valley bank would have access to their full deposits on Monday. The relief was felt across the technology sector.
“Obviously I’m quite relieved,” said Stefan Kalb, co-founder and CEO of Seattle-based startup Shelf Engine, who told CNN that without government intervention, his company would have had to close by the end of the week. “It’s been a very stressful weekend and I’m quite relieved to hear the news.”
Parker Conrad, the CEO of HR platform Rippling, who previously said some clients’ payrolls were being delayed by the bank failure, tweeted Sunday, “Anyone else breathe a sigh of relief and look forward to a good night’s sleep tonight?”
And Garry Tan, the CEO of tech startup accelerator Y Combinator, who wrote the petition to Yellen, commended the federal government for “acting decisively.” Tan, the investor who previously warned of “an *extinction-level* event* for startups” that would “set startups and innovation back by 10 years or more,” added on Sunday his appreciation for “everyone who pushes us through.” a very, very intense time helped time.”
But even as the tech industry enjoys a break from a fearful weekend, unknowns remain. “You can feel the collective *sigh*,” Ryan Hoover, a tech founder and investor wrote Sunday on Twitter. “I’m still nervous,” he added. “The side effects are difficult to predict.”
It’s unclear how the aftershocks of the bank’s collapse will contribute to the start-up industry’s growing challenges in accessing capital. SVB’s collapse also threatens to change the way the world and potential employees view Silicon Valley.
For years the term itself conjured up an image of an enclave of smart, contrarian, libertarian engineers and thinkers who could see around corners and make big bets on the future. Now that same industry is relying on the federal government to survive after failing to recognize the risk, or worse, contributing to it through shared hysteria.
How Silicon Valley tried to save itself
In the chaotic days leading up to the bank’s collapse on Friday, some venture firms reportedly asked their portfolio companies to withdraw their money, which may have contributed to the bank’s failure.
Then, over the weekend, many venture capitalists and tech founders banded together to try to mobilize government and public will to bail out the companies hit by the sudden collapse of Silicon Valley Bank.
While some VCs seemed to embrace fear-mongering on Twitter, much of the public messaging has focused on small businesses with exposure to Silicon Valley Bank that may not be able to continue operations after losing access to the money on their lost bank account.
“We are not asking for a bailout of the bank’s shareholders or management; we urge you to save innovation in the American economy,” the Y Combinator petition reads. “We ask for relief and attention to an immediate critical impact on small businesses, startups and their employees who are depositors at the bank.”
A separate coalition of more than a dozen venture capital firms, including Lightspeed Venture Partners and Upfront Ventures, issued a Joint Statement late Friday in support of Silicon Valley Bank given its unique and important role in the startup economy. The bank has worked with nearly half of all venture capitalized technology and healthcare companies in the United States.
“For forty years, it has been an important platform that has played a pivotal role in supporting the startup community and supporting the innovation economy in the United States,” the statement said. “In the event that SVB were purchased and adequately capitalized, we would strongly support and encourage our portfolio companies to resume their banking relationship with them.”
What the collapse of the Silicon Valley Bank means for Silicon Valley
Even before the bank collapsed, the startup industry was in a difficult phase. Venture capital funding had contracted amid rising interest rates and broader macroeconomic uncertainty; Tech companies cut staff and ambitious projects; and some of the largest private companies reportedly downgraded their valuations.
Instability at a top tech lender and lingering questions about its impact on other regional banks and the broader financial system could make it even harder for cash-strapped startups to access the capital they need to survive.
President Joe Biden stressed Monday that “no losses will be borne by taxpayers” related to the government’s intervention for the Silicon Valley bank. But some are already skeptical of the statement, including Democratic Senator Elizabeth Warren of Massachusetts, who wrote in a comment Monday morning, “We’ll see if that’s true.”
Immediately afterwards, there is uncertainty about how long it will take for companies to get their money out of the bank.
On Monday, Kalb said the money in his Silicon Valley Bank account hasn’t yet been transferred to the new JPMorgan Chase account he set up for Shelf Engine on Thursday. “I was checking my email obsessively,” he said. “Hopefully the money can be transferred shortly.”
Ben Kaufman, the co-founder of venture-backed toy store and online retailer Camp, told CNN’s Poppy Harlow in an interview Monday morning that he and his team spent the weekend “fighting to survive,” including a last-minute 40 % off sale with code “BANKRUN” to raise funds over the weekend.
“We didn’t know how long it would take to withdraw our money…we still don’t know, they say today, we’ll see what happens,” he said, noting that the bank held 85% of his assets company. “We hope we can, and we’re so grateful that the Fed stepped in, and did it the way it did.”
When asked if the events of the past week would change how and where he stores his money, Kaufman said it “has to be a consideration to move forward.”
“I don’t want to do that again,” he said.