When regulators seized Silicon Valley Bank, startups struggled to make | News

When Punit Singh Soni founded Suki in 2017, Silicon Valley Bank seemed like the natural place to put his company’s money. Many other tech companies have been clients, and the bank has been seen in many ways as the “default” for startups to use, Soni said.

“Honestly, when you’re an entrepreneur, you don’t want to think about banking. You want it to work,” he said. “And I think there are very few places that understand entrepreneurs the way SVB does.”

Little did he know that roughly five years later, this “default” bank would collapse and be taken over by state and federal regulators. That’s the shocking reality many in the local tech industry have faced this past week after a bank run forced the nation’s 16th largest bank into bankruptcy. It was the second largest bank failure in US history.

On Friday, March 10, government regulators stepped in to take control of the bank and told customers they could access their deposits on Monday up to the $250,000 cap that the Federal Deposit Insurance Corporation (FDIC) insures.

What wasn’t clear until Sunday, when the FDIC announced it would guarantee the full amount of all deposits, was what would happen to any money above the quarter-million-dollar limit.

In the past few years, Suki — a Redwood City-based artificial intelligence company that created a voice assistant for doctors — has raised roughly $100 million and uses Silicon Valley Bank for its main operating account, Sonny said. He chose to work with one bank because of the simplicity it provided.

“Who ever went through banking? It’s the stuff you read about in books,” Sonny said.

Sonny wasn’t the only one left struggling in the days after the bank’s collapse.

On Monday, Wilbur Properties, a real estate and property management company that manages more than 200 properties in the Bay Area, including tech sites, sent a letter to its tenants notifying them that all online payments through Silicon Valley Bank are on hold while Wilbur Properties successfully create new bank accounts. Wilbur Properties was unavailable for comment for this article.

Gary Tan, CEO and president of Y Combinator — a Mountain View-based accelerator for tech startups that has been used to launch more than 4,000 companies, including Airbnb, DoorDash, Reddit and Instacart — circulated a petition on Twitter a day after the collapse , asking the government to step in quickly to save startups whose only bank accounts, like Suki’s, were at SVB.

In the Y Combinator community, “one-third of startups with SVB exposure used the bank as their only bank account,” tweeted Tan. He estimated that more than 10,000 small businesses and startups could be at risk of wage-related furloughs or closings, which would affect more than 100,000 jobs.

“The real victims of SVB’s collapse are the depositors: startups (10 to 100 employees) who can’t pay their salaries and will have to close or furlough next week,” he tweeted before the FDIC’s announcement that it would guarantees the full amount of all deposits. “If these startups are waiting weeks/months for their deposits, we’ve destroyed a generation of American startups, randomly.”

Tan wrote in the Y Combinator petition that these companies will not have the money to pay their employees in the next month.

“Silicon Valley Bank’s bankruptcy poses a real risk of systemic contagion. Its collapse has already caused fear among founders and management teams to seek safer havens for their remaining cash, which could put pressure on any other smaller bank,” he tweeted.

Sonny said that when the banking collapse first occurred, his top priority was to make sure his company could pay wages on time. As investors began calling for companies to pull their money out of the bank in the days leading up to the bank’s failure, Sonny said he felt they were “panicking” and that he tried not to overreact by deciding to leave Suki’s money in Silicon Valley Bank.

The problem was that the panic created a situation where those who stayed calm and left their money in the bank ended up being put in a more difficult position, Sonny said.

Through a combination of its own funds and money put in by investors, Sony said the company has put together a plan to ensure employees are paid.

“I can’t tell you with a straight face that this was easy,” Sonny said. “These two days have been quite nerve-wracking.”

Reflecting on the crisis, Sonny said he believed that while it was a failure of Silicon Valley Bank executives, he also believed that Silicon Valley leaders failed to remain calm and communicate clearly. Instead, the panic created a situation where depositors raced to withdraw their money, precipitating the crash.

“I feel like it was a classic moment where we should have shown more leadership,” Sonny said. “First of all, we have to trust the government. They will do the right thing.”

Soni noted that the government has an incentive to ensure confidence in the banking system. For the past week, he had thought it would be a matter of when, not if, Suki would have access to her funds.

To protect itself in the future, Suki is looking at how to diversify its finances by using multiple banks, Soni said. But as of Tuesday, her funds remained at Silicon Valley Bank, and Soni said she was considering continuing to use the bank.

Angela Hay, a technology consultant at Portola Valley, said any institution that uses a bank needs to be smart about the risks.

“People are very lucky that the government is bailing them out because otherwise it would have been more catastrophic,” Hay said. “There will be ripples from the loss of SVB shares for those who held them.

“This is a lesson for businesses to diversify their holdings, especially small businesses. Any business, nonprofit, church, school, or other institution with more than $250,000 in any bank would do well to segregate their holdings to make sure they are covered by FDIC insurance if there is a run on their bank,” she said. “As we see, this can happen very quickly and assets can disappear in an instant if even a rumor of banking instability goes viral. A malicious tweet, blog or video has the power to destabilize trust in a financial institution.”

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