Concerns and Uncertainty after Silicon Valley Bank Collapse
The closure of Silicon Valley Bank (SVB) has significant implications for venture capital (VC) money. As a key player in the VC industry, SVB had served as a bank for many startups and investors across the venture capital-backed ecosystem. Many funds, from large well-known ones to new, emerging funds, kept their own cash raised with the bank, while their partners often used SVB for their own banking, too, or for mortgages. Startups, meanwhile, kept much or all of the money they raised and called from investors with SVB.
The shutdown of SVB has therefore caused significant concern and uncertainty for startups and investors alike. Some startups and their investors have already begun urging their startups to withdraw their funds from the bank. However, while attempts to withdraw capital from SVB Wednesday and through Thursday afternoon had gone smoothly, others who attempted to withdraw in the evening and into Friday were unclear as of lunchtime Friday whether they’d get their funds anytime soon.
Insured depositors have been assured that they will have full access to their insured deposits no later than Monday morning, March 13, 2023. Uninsured depositors, however, were told they would receive a receivership certificate for their remaining funds, to be paid out in future dividend payments as the FDIC sold off SVB’s assets.
The biggest question for investors and founders now is how startups will make payroll next week. Some startups that banked with SVB will need to pay employees as soon as Tuesday, and board directors (who are frequently VCs who’ve backed the company) also carry liability for their companies to do so. One payroll provider, Rippling, emailed customers that action was needed to maintain use of their account as Rippling moved off SVB to JPMorgan Chase.
While the closure of SVB is undoubtedly a significant blow to the VC industry, some firms have already taken steps to backstop their portfolio in making payroll. Lowercarbon Capital, for example, has committed to “directly front” the cash needed for its startups, should they be unable to make payroll in the next two weeks. Other investors will need to step up to ensure that their startups can continue to operate and thrive, despite the closure of SVB.