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The collapse of Silicon Valley Bank unleashes chaos among tech startups

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Ashley Tyrner opened an account to Silicon Valley Bank for his company, FarmboxRx, two years ago. He was preparing to raise venture capital and knew the bank was an option for the start-up industry.

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Thursday, after reading about the financial instability at the bank, he was quick to do so transfer the money from FarmboxRx to two other bank accounts. Your bank transfers have failed. And on Friday, Silicon Valley Bank collapsed, locking up cash totaling eight figures for its company, which supplies food to Medicare and Medicaid participants.

“None of my representatives will call me back,” Tyrner said. “This is the worst 24 hours of my life.” His despair it was part of the fallout on the startup ecosystem from the failure of the Silicon Valley Bank. Entrepreneurs scrambled to get payroll loans because their money was frozen in the bank.

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Investors distributed and asked for advice in memos and emergency conference calls. Lines formed outside bank branches.

the implosion it shook up an emerging industry that was already on its brink. Affected by rising interest rates and an economic slowdown over the past year, seed funding, burdened by years of low interest rates, has been cut, leading to mass layoffs at many young companies, cost cuts and valuations reduced.

in autumn

Investment in US startups fell 31% last year at $238 billion, according to PitchBook. Furthermore, the downfall of Silicon Valley Bank was particularly concerning because it billed itself as a “financial partner of the innovation economy.”

The bank, founded in 1983 and headquartered in Santa Clara, California, was deeply enmeshed in the technology ecosystem and provided banking services nearly half of all science and technology companies backed by companies in the United States, according to its website.

Silicon Valley Bank has also been a bank for more than 2,500 venture capital firms, including Lightspeed, Bain Capital and Insight Partners. He has managed the personal wealth of many tech executives and has been a staunch supporter of Silicon Valley’s tech conferences, parties, dinners, and media.

Greg Becker, CEO of Silicon Valley Bank.  photo by AFP

Greg Becker, CEO of Silicon Valley Bank. photo by AFP

The bank was a “systemically important financial institution” whose services were “immensely startup-friendly,” said Matt Ocko, an investor at venture capital firm DCVC.

On Friday, the Federal Deposit Insurance Corporation took control of Silicon Valley Bank’s $175 billion in customer deposits. Deposits of up to $250,000 were insured by the regulator. Besides that, heCustomers have not received information on when they will have access to their money again.

This has left many of the bank’s customers in the lurch. Roku, the streaming TV company, said in a statement on Friday that about $487 million of its $1.9 billion in cash was linked to Silicon Valley Bank. Most of the deposits were uninsured, Roku said, and it didn’t know “to what extent” it could recover them.

They can’t get the money

Josh Butler, CEO of CompScience, a security analytics start-up, said so he couldn’t get his company’s money out of the bank Thursday or before the bank crash on Friday. The last day, she said, had been stressful.

“Everyone, from my investors to employees to my mother, is reaching out to ask what is going on”, said the butler. “The big question is how soon will we be able to access the rest of the funds, how much, if at all? This is absolutely terrifying.”

CompScience was suspending marketing, sales and recruiting spending until it addressed more pressing issues, such as payroll. Butler said he was prepared for a major crisis given the pessimism which has made the rounds in the industry.

But “did you expect it to be Silicon Valley Bank?” he said. “Never”. Camp, a start-up that sells gifts and experiences for children, added a banner to its website on Friday that read: “OUR BANK HAS JUST CLOSED SO IT’S ALL FOR SALE!”

The site was offering 40% off with the promo code “bankrun” along with a meme that included the words “never liked the bay area” and “How could this happen”. A Camp representative said the sale is related to the collapse of Silicon Valley Bank and declined to comment further.

Sheel Mohnot, an investor in Better Tomorrow Ventures, said Thursday that his venture firm has advised its startups to transferring money into treasury bills and open other bank accounts for prudence.

“Once a bank run starts, it’s hard to stop,” he said. Some of the startups Mohnot’s company has invested in chose not to move their money, while others were unable to act in time before the bank went bust, he said. Now his biggest concern was making payroll, followed by figuring out how to pay the bills, he said.

Source: Clarin

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