SVB crisis sparks four-day panic as startup execs seek funding

A Silicon Valley Bank employee talks to people queuing outside the bank’s offices in Santa Clara, Calif., March 13, 2023.

Justin Sullivan | Getty Images

After turning on CNBC last Thursday to see SVB shares take a big hit and messages from venture capital firms urging startups exportAfter that, EarthOptics CEO Lars Dyrud acted quickly. At 4 p.m. ET, he requested a wire transfer of $25 million, about 90 percent of his company’s deposits, from Silicon Valley Bank.

It’s too late. Earth Optics No reply on Thursday, next day SVB confiscated Sued by regulators in the second largest bank failure in U.S. history. Dyrud doesn’t know when he will be able to access his company’s deposits because the FDIC only guarantees $250,000 per customer.

Like thousands of SVB customers, Dyrud’s biggest concern is missing pay slip March 15th, which is a few days away.He spent all day Friday and the weekend developing a contingency plan centered on securing a $1 million loan from three board members, including an investor, who would wire the funds to Bamboo HRthe company’s payroll processor.

“We started planning to be cashless for nine months,” Dyrud said in an interview Tuesday. “We have four plans in order of priority in case something goes wrong.”

Dyrud sent a Slack message to his employees late last week, updating them on the situation.

“Ultimately we want to be whole, but need to be prepared to use other means of obtaining cash while we resolve the issue,” Dyrud wrote in the memo he shared with CNBC.

Rapid crash send for SVB shock wave Across Silicon Valley, the collapse of the preeminent bank serving venture-backed start-ups could indefinitely freeze the way companies can pay their employees, suppliers and partners the money they need, while also destabilizing the banking system .

According to California regulators, investors and savers $42 billion withdrawn The bank withdrew from SVB before the end of Thursday after the bank said it would sell $21 billion worth of securities at a loss and try to raise more funds. Dairoud feared at the time that it would be the fastest bank run the country had ever seen because of the nature of the customers and the speed at which information spread.

On Friday afternoon, Diroud went with his chief administrative officer and chief financial officer to a local FuGuo bank Open a new account at our Arlington, VA branch. It’s the only bank that will open same-day accounts for his 75-person start-up, whose technology is used by agricultural companies and farmers to measure the health of soil.

I think you'll see a flow of depositors to the healthiest banks, says WaFd Bank CEO

That night, Dyrud held a 45-minute board meeting soaring Make sure everyone understands the game plan and loan arrangement, structured as an unsecured promissory note. Dyrud said he has been on the phone 12 hours a day since Thursday.

Four days of panic finally came to an end late Sunday when regulators announced a plan to support deposits and ensure that all customers will be able to withdraw their funds from Monday.

By the beginning of the week, EarthOptics’ cash was safely deposited with Wells Fargo and was repaying loans to two investors. Dyrud said he was able to cancel the third investor’s loan before sending the money.

“It was the most intensely negotiated two-day loan ever,” Diroud said.

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otter Founder and CEO Sam Liang drove to the SVB branch in Silicon Valley on Monday in an attempt to get back millions of dollars in the company’s funds.

Liang said the company’s software can transcribe audio from meetings and interviews, and an attempt Thursday night to initiate the transmission was never successful.

“We were very worried all weekend and watched the news,” Liang said in an interview Monday in the parking lot of the SVB branch in Menlo Park, Calif. “I checked Google About 20 times an hour, watch [Treasury Secretary Janet] Yellen talked about not bailing out Silicon Valley Bank. “

He woke up at 7am on Monday and tried to log into his account, but he kept getting error messages because the system was overloaded. Just then, he got into his car.

“I thought, well, I’ll go to the office myself,” Liang said. “I went to the Palo Alto office first. There was a long line there, but someone said they couldn’t do much. I drove from the Palo Alto office to the Menlo Park office.” At that branch, he waited It took anywhere from 90 minutes to two hours.

Leung said he was lucky that Otter, which has about 100 employees, moved most of the funds to another bank a few months ago, but he did not say why. However, he said the company had a lot of money in SVB — millions of dollars, but less than $10 million — and it would be a “huge loss” if it disappeared.

“We need to make sure the payroll and everything is in order,” Liang said.

He won’t be able to get all the money right away, but he’s confident it will all be available under the plan announced by regulators on Sunday.

Silicon Valley Bank customers listen and speak to them as FDIC representatives leave before the opening of the SVB headquarters branch in Santa Clara, Calif., March 13, 2023.

Noah Berger | AFP | Getty Images

“I just got a cashier’s check,” he said. “They couldn’t give us everything, so they gave us a percentage of the money. We might have to do it again later today.”

Meanwhile, as the client plots its next move, SVB’s newly appointed leader sends out a plead Let the customer go home.

Tim Mayopoulos, appointed by the FDIC to be chief executive of the bank, now known as Silicon Valley Bridge Bank, emailed customers to let them know that SVB was open for business and ready to receive and hold deposits.

“The first thing you can do to support the future of this institution is to help us rebuild our deposit base, both by keeping deposits at SVB and transferring back deposits left over from the past few days,” he said. Mayopoulos wrote in an article.also posted in Company website.

Otter opened accounts with two of the larger banks over the weekend and will “distribute the funds to multiple banks,” Liang said.

Dyrud has similar plans.Currently, all of EarthOptics’ cash is parked in Wells Fargo, but he said the company will soon allocate some of it to JPMorgan and another bank.

“It makes sense,” Derroud said. “If we had a second account, we wouldn’t be in this position.”

Dyrud traveled to San Francisco this week from Washington, D.C., where he lives, for a conference. Dyrud said he had never done business with SVB before running EarthOptics, but he spoke at the event with people who had longer, deeper ties to the bank through venture debt arrangements and other types of financing .

“There are people who are more loyal than me,” he said.

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Will Glaser puts himself in the more loyal category despite a similarly chaotic four days as he tries to shore up the company’s liquidity.

Glaser is founder and CEO Record, developer of checkout-free shopping technology. A longtime Bay Area technologist, he co-founded Pandora in 2000.

Due to the terms of its agreements with banks, Grabango has been more limited than some others in how it responds to the SVB crisis. Grabango relies on banks for risky debt lines, including a clause that prohibits the company from doing much banking with other institutions.

That exclusivity caused Glaser a lot of headaches over the weekend. He’s not sure how he’ll be able to raise the money needed to pay the March 15 wages without violating the company’s agreement with SVB. No one answered the phone at the bank to tell him it was ok, or to help him get an additional short-term loan from SVB.

“I’m definitely scrambling with my team and investors to find an alternative,” Glaser said. “I never thought we’d lose our savings, but it’s definitely a liquidity crunch. Will we have money and time to pay wages?”

Glaser said he spent the weekend talking to his investors and lawyers at Orrick, Herrington & Sutcliffe. They are discussing all possible contingencies and trying to determine if there are any emergency funding options to pay the salaries of the company’s 110 employees without violating the terms of the SVB contract. That could involve “me personally funding the payroll” or “one of our investors getting involved,” he said.

Ultimately, Glaser was relieved from having to make a difficult decision. All of Grabango’s cash in the bank, totaling millions of dollars, will be available on Monday in time for the company to transfer funds to its payment provider and pay wages on Wednesday.

Not that it was all smooth sailing on Monday, when Glaser was one of many SVB customers trying to get things back up and running. The bank’s technology systems were not prepared for the shock.

“I’m on the SVB website and feel a bit like a teenager trying to buy taylor swift ticketssaid Glaser,

Despite the frenzy from Thursday to Monday, Glaser is now more confident than ever about his banking. Prior to the SVB run, Grabango deposits were not protected. They are now, insured or uninsured, under the government’s actions to protect savers.

This week, Grabango even canceled an additional line of credit with SVB, allowing the company to secure more capital for its hardware business.

“I think the world will be more diverse in the future,” Glaser said. “But right now, as long as Silicon Valley Bridge Bank is 100% federally insured, there is no need for diversification. There is no safer place.”

– CNBC’s Rebecca Smith contributed to this report

watch: Here’s how lawmakers view SVB’s collapse

Rep. Patrick McHenry said the FDIC sent a clear message that bank accounts are safe in the U.S.

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