by - Silicon Valley Bank was shut down by US regulators on Friday.
- Founders ran to withdraw money from the bank. Even some who didn’t have bank accounts with the SVB were injured.
- Insider spoke to 8 founders about how they responded to the collapse of SVB.
It’s been a chaotic day for the startup world following the collapse of Silicon Valley Bank.
Almost half of all US venture-backed startups use the bank’s services, according to its website, and amidst its implosion, many of them have struggled to secure their companies’ funds. Even some founders whose startups weren’t banked with SVB have suffered the consequences as the money to pay their paychecks is now at stake.
Insider spoke to eight startup founders about how they are responding to the crisis.
“We need to get our money out as soon as possible”
Some founders suspected a catastrophe on the horizon and tried to withdraw their funds immediately. As the share price of SVB’s parent company, SVB Financial, plummeted on Thursday, VC firms including Founders Fund and Y Combinator advised founders to withdraw most of their funds from the bank.
Bruno Faviero, the co-founder and CEO of crypto token management startup Magna, took note of these early warnings. Magna had recently opened an SVB account and Faviero had a scheduled welcome meeting with the bank on Thursday afternoon. Ten minutes before the agreed appointment, the bank broke off the call with reference to an “urgent customer situation”.
“I went to our operations manager and said, ‘We’ve got to get our money out of there as soon as possible,'” he said. Magna transferred his funds in SVB to another of his accounts at fintech Mercury just before concerns of a bank run began to mount.
Other founders weren’t so lucky: They still had their company’s funds with Silicon Valley Bank when the FDIC announced it had taken control of the bank.
Donnel Baird, founder of air conditioning tech startup BlocPower, needed to figure out how to transfer money on a flight with faulty WiFi. Although SVB wasn’t BlocPower’s main bank — the company had less than a month’s worth of payslips on it there, Baird said — he was keen to get his money out.
“I persuaded my flight attendant to turn the internet back on on the plane,” he said. “Then I sat in the plane’s bathroom for 40 minutes trying to move money.”
Get eggs from the SVB basket
Baird and several other founders told Insider that they’ve long tried not to put all their eggs in one basket, keeping accounts for their companies at multiple banks.
Raj Mahal, the CEO of PlanMoreTrips, said after Brex closed his company’s account during the fintech startup’s move away from smaller businesses, he decided to open accounts in multiple banks to mitigate the risk of sudden closures.
After the collapse of Silicon Valley Bank, he said, “It saved us because we could transfer our money quickly without having to wait for us to open a new business account at another bank.”
Likewise, Madison Maxey, the CEO and founder of Loomia, which makes electronic textiles, told Insider that her company has accounts with several banks and that she is in the process of transferring funds from SVB. “It’s not fun, but it’s not the end of the world,” she said.
A few early-stage founders told insiders that they don’t have accounts with Silicon Valley Bank. Torben Friehe, CEO and co-founder of Wingback, which provides pricing tools for software-as-a-service companies, said the process of getting a corporate credit card was much longer at SVB than it was at fintech startups like Brex and Mercury.
“SVB was like the Wells Fargo of startup banking,” he said. “This is no longer a modern solution.”
Thomas Rouffiac, co-founder and chief operating officer of electric vehicle battery materials startup Natrion, said he doesn’t see the advantages Silicon Valley Bank offers over other traditional banks. “Especially when we started out on the East Coast,” he said, “the standard was always, ‘Go straight to Chase.'”
Mourning for a pillar of the startup ecosystem
But most founders who spoke to Insider lamented SVB’s failure and expressed concern about the potential impact. “SVB, it’s not a small community bank,” Ashley Tyrner, the founder of FarmboxRx, told Insider. “As a CEO, there is no book that prepares you for this.”
Maxey, the founder of Loomia, said she was disappointed by the widespread panic that preceded the bank’s collapse.
“This emergency was not helped by investor frenzy and orchestrating a bank run,” she told Insider. “If the investment community found it beneficial to keep an institution afloat through an individual goal of protecting only their own businesses, I’d like to think we could have avoided the biggest bank shutdown since 2008.”
The negative consequences extend beyond SVB’s direct customers. Healthtech startup Flow Health, for example, used Rippling, which had an account with the SVB, as its payroll provider. Amid the aftermath, the company was unable to process Flow Health’s payroll.
“We literally have no way of paying employees right now,” Flow Health CEO Alex Meshkin told Insider.
Meshkin said his team is exploring other payroll services outside of Rippling to get payroll working and also exploring legal options.
SVB’s failure could even affect the personal lives of some founders, Brad Hargreaves, the founder and chairman of coliving startup Common, wrote on Twitter. Many founders turned to SVB for personal banking services, he said.
Faviero. Magna’s CEO agreed, “As people get older and their companies get older, they need things like venture debt, mortgages.
Bianca Chan and Carter Johnson contributed to this report.
