Silicon Valley Bank’s failure could wipe out ‘an entire generation of startups’: NPR

Shelf Engine co-founders Bede Jordan, left, and Stefan Kalb

Shelving engine

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Shelving engine

Shelf Engine co-founders Bede Jordan, left, and Stefan Kalb

Shelving engine

Stefan Kalb was in the middle of a meeting around 1 p.m. Thursday when a fellow company executive sent him a panicked message on Slack: “Do you know what’s going on at SVB?”

Kalb, the CEO and co-founder of Seattle-based food management startup Shelf Engine, had been following the news of a bank targeting Silicon Valley Bank, with a crowd trying to get $42 billion out of the bank only Thursday for fear that it was teetering on the edge.

On Wednesday, the bank was in a strong financial position. The next day, it was underwater.

For Shelf Engine, a 40-person startup founded in 2015 that uses artificial intelligence to help grocery stores reduce food waste, this was a big issue.

Not only did Silicon Valley Bank help the company process checks and payments, but all of the startup’s cash was locked up in the bank.

Kalb swung into action. He and his team quickly opened an account at JPMorgan Chase and tried to transfer every last penny from the Silicon Valley Bank.

“Unfortunately, our wire was not honored and our money is still in Silicon Valley Bank,” Kalb, 37, said in an interview Friday. “We woke up this morning hoping the money was in that JPMorgan bank account, and it wasn’t.”

While he declined to provide the exact amount, he noted that Shelf Engine has raised more than $60 million from investors. “It was a very large sum of money,” he said of the transfer.

It’s a nail-biting limbo that many tech startups with deep roots in Silicon Valley Bank now face after the bank’s implosion, the biggest U.S. bank failure since the 2008 financial crisis.

For tech startups, which for decades have relied heavily on the Santa Clara, Calif.-based bank, it has unleashed a crisis that could lead to mass layoffs or the collapse of hundreds of startups, according to industry experts.

“If the government doesn’t step in, I think a whole generation of startups will be wiped off the face of the planet,” Garry Tan, president and CEO of startup incubator Y Combinator, said in an interview.

An “existential risk” to innovation and competition in America

Founded out of a poker game in 1983, Silicon Valley Bank became the go-to lender for tech startups that seemed too risky in the eyes of larger, more traditional banks. Silicon Valley Bank would eventually come to do business with nearly half of all US tech startups backed by venture capitalists.

“If you’re a high-growth startup, you can’t get a credit card from a regular credit card provider, you can’t get a loan from a big bank, but Silicon Valley Bank would give it to you,” Shelf Engine said . Kalb said. “It’s these services that startups couldn’t get anywhere else.”

Silicon Valley Bank did business with well-known tech companies like Shopify, Pinterest, Fitbit, and thousands of lesser-known startups, as well as established venture capital firms like Andreessen Horowitz.

Roku, the TV streaming provider, was among the companies caught in the middle for a sum of $487 million, it said in a filing with the regulator on Friday. “At this time, the company does not know to what extent the company will be able to recover its cash on deposit with SVB,” Roku officials wrote of what is about 26% of the company’s cash.

Tan, with Y Combinator who helped launch startups like Airbnb, Reddit and Instacart, said the biggest threat right now isn’t to the Rokus of the world, but to the wayward startups already struggling to stay afloat. life in a challenging fundraising environment. .

Founders have been texting him non-stop since Silicon Valley Bank failed with a sense of fear and dread, increasingly facing what could be the end of their companies.

“The founders are texting me now and saying they don’t know how to pay payroll next week. Are they going to have to take out personal loans to keep the business going? Do they have to lay off workers?” Tan said. “This may be an existential risk to competition and innovation in the American economy for the next decade.”

While most banking experts do not expect the fallout from Silicon Valley Bank’s collapse to spread to other parts of the financial world, how much money depositors will be able to recover remains an open question.

Silicon Valley Bank’s failure comes at a ‘tough’ time for startups

The Federal Deposit Insurance Corporation has said that depositors will be able to access up to $250,000 of their funds on Monday morning. Any amount above this will result in a “settlement certificate”.

And when the FDIC sells Silicon Valley Bank’s assets, certificate holders will receive payments, but it’s still unclear how long that will take and how much money will be returned.

Some estimates suggest that as few as 3% of bank deposits are under $250,000, meaning that the vast majority of depositors have money that exceeds the standard federal insurance.

Kalb said he is exploring debt financing or other lines of credit to survive.

Getting $250,000 from the FDIC would keep the startup open for a few extra days, but not much longer.

You just paid your employees this week and your next payroll deadline is March 20th.

“If we don’t have access to capital by then, we’re going to have to make some very difficult decisions,” he said.

The collapse of one of Silicon Valley’s cornerstone financial institutions couldn’t have come at a worse time for the startup ecosystem, Y Combinator’s Tan said.

High interest rates and market uncertainty have caused lenders to tighten their purse strings, after many years of low interest rates and easy money, valuations rose.

Lately, employers have been sounding the alarm about the rapid evaporation of existing cash, forcing thousands of startups to lay off workers or close altogether.

In these bruising conditions comes the collapse of Silicon Valley Bank, considered a financial pillar of the startup world.

“Venture capital funding had already been in a contraction mode,” Tan said. “So this is a really difficult time for something so devastating to happen.”

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