Flow Health employees were among the thousands of people who could be affected by the spectacular collapse of Silicon Valley Bank on Friday, which marked the second largest bank failure in US history and sent shock waves through the worlds of tech and finance.
Even if the government takes over the bank, which is known for lending to startups but also offers private banking loans and other services, deposits will only be insured up to $250,000. The bank’s assets were over $200 billion. The California Department of Financial Protection and Innovation announced that $42 billion was withdrawn from banks on Thursday alone.
A Silicon Valley bank closed in the second largest bank failure in US history.
Start-up founders worried that they would be forced to lay off their employees if the money held by the bank was frozen or lost. Big companies like connected TV provider Roku and video game developer Roblox have warned investors that hundreds of millions of dollars sitting in Silicon Valley banks could be at risk. And venture investors canceled planned meetings with startups, unsure of whether it would be a knock-on effect for the industry. Other startups have publicly confirmed that they are not exposed to their customers.
Silicon Valley Bank has relationships with more than half of the venture-backed companies in the United States, according to its website.
Without a quick bailout of the bank, the consequences could be dire for many startups and the broader tech scene, said Gary Tan, CEO of Y Combinator.
“This is an extinction-level event for startups and it sets up startups and innovators by 10 years or more,” Tan said.
To all Sentry users: Make sure Sentry has no account in SVB. So far, none of our service providers have presented any issues with our services to you. Sending the best to our customers and the wider tech community today 🤞
— Sentry (@getsentry) March 11, 2023
Silicon Valley Bank did not respond to a request for comment. The Federal Deposit Insurance Corporation, which took over the bank on Friday, said the Silicon Valley bank had total assets of $209 billion and total deposits of $175.4 billion as of the end of December. Balance now.
Deposit holders can withdraw up to $250,000 on Monday, the FDIC said. For those who have received more than their deposit, they have provided a phone number to call.
The collapse of the Silicon Valley bank adds to a challenging period for technology companies, following months of plummeting stock prices and tens of thousands of layoffs. After years of rapid growth, things have slowed down and become stagnant – seemingly disconnected from the broader US economy.
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The sudden collapse of one of the industry’s mainstays is raising fears that the sector’s economic situation may be worse than suspected, and the loss of a key part of the financial pipeline the industry relies on is scrambling for tech leaders.
Brad Hargreaves, who co-founded Coding Bootcamp General Assembly and sits on the boards of several startups, says, “There are a lot of companies in SVB that can’t pay salaries because their money is frozen. “I think they’re going to get fired from here.”
In the year Founded in 1983, Silicon Valley Bank has served the technology industry through the ups and downs of the past four decades. In the year During the startup boom that followed the 2008 financial crisis, the bank grew rapidly, trading on its name to meet the needs of fast-growing startups. Companies that raised money from venture capitalists put it in the bank. Venture capitalists themselves provide loans to fund investments in new startups alongside the company itself. And tech workers and executives used the bank for personal wealth management and lending.
“They see themselves as community lenders to the entire ecosystem,” Hargreaves said. “The best analogy is a credit union in a small town, then imagine if it’s not big and the small town is tech.”
The bank required some customers to work exclusively with it to get loans, further centralizing its role in the technology ecosystem. According to one founder, who spoke on condition of anonymity to protect his relationship with the bank, he previously spread his money among different banks until a deal with Silicon Valley Bank forced his company to keep all of its cash there.
Fears of the bank’s collapse spread to other firms and the broader economy on Wall Street and around Washington on Friday. Treasury Secretary Janet L. Yellen said she was monitoring the situation, and White House Council of Economic Advisers Chairwoman Cecilia Rouse said the financial system was ready to deal with these types of bank stress tests set up by the 2008 crisis. shocking”
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Shares of other regional banks fell, including First Republic Bank, which serves the Bay Area and hosts startups and wealthy tech workers.
Concerned about the impending collapse of a Silicon Valley bank, a Bay Area startup founder went to First Republic Bank on Friday to move money to Chase, a much larger firm, to beat what he feared could be a run on deposits. The founder, who spoke on condition of anonymity to avoid damaging his relationship with the bank, has tried visiting a more obscure location in Oakland, but said there is still a line out the door of customers asking for a wire.
“I’ve raised a lot of money, and I can’t believe it’s just going to evaporate,” he said in a text message from a conference room at a bank as he waited for the wire to go through. Some of his friends, who are startup founders and bankers at Silicon Valley Bank, “think they’ve lost everything but $250,000,” he wrote. His transfer passed before it was finally terminated.
Because the Silicon Valley bank serves startups and wealthy individuals, most of its deposits were above the federally mandated $250,000 limit, raising hopes that billions of dollars in cash may never be recovered. In the past, the government has paid more than $250,000, but it is not clear whether it will be here.
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The potential financial losses were seen on Friday as publicly traded companies were forced to warn investors about the risks.
Roblox told investors that $150 million of its $3 billion in cash is deposited in a Silicon Valley bank. Roku said $487 million of its $1.9 billion in cash is held by the bank. Medical device maker iRhythm Technologies, meanwhile, said $54.5 million of its $213 million in cash and short-term investments will be there.
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Other companies said they faced serious consequences, without elaborating. Drugmaker Axom Therapeutics said it has “material” cash deposits at Silicon Valley Bank and another bank, but believes the second bank’s balance sheet and existing loans are sufficient to sustain funding.
An entrepreneur in San Francisco said he had withdrawn $250,000 after investors urged him to withdraw at least some of the money Thursday, but efforts to get the rest of the money were unsuccessful. The company has now blocked $2 million in funds.
With 90 percent of the company’s stock frozen, it was at risk of bankruptcy within weeks. But he knew of other startups that had all their funding and credit lines frozen and could soon collapse.
“That’s my biggest fear right now,” said the startup’s founder, who spoke on condition of anonymity because of concerns about disclosing the company’s financials. “I really hope investors bail us out.”
“Everybody I know has their money in SVB,” he added.
Many startup CEOs are at a loss as to how to pay their employees and manage their businesses.
Parker Conrad, chief executive of payroll company Rippling, tweeted Friday that the company is switching its processing bank to JPMorgan Chase and will receive funds for employees by Monday. He apologized to the workers who were not paid at the time.
“You trusted us, and we didn’t deliver. “Although paychecks are on the fly, I know delays of any length have a real impact, especially for anyone living paycheck to paycheck,” he posted.
Meshkin, the health tech startup’s CEO, said before Rippling’s latest update that if the money doesn’t reach workers by early next week, the company will have to find a way to manually pay its more than 1,000 workers at the United Nations. States and Canada, which currently lack infrastructure.
“We have a lot of angry employees,” Meshkin said.
Shondra Washington, who works as a part-time chief financial officer for several companies, said one of her clients worked with Ripling and was waiting for a paycheck. Other customers used Silicon Valley Bank for their money and could never access their accounts.
“We don’t even know where the money is. It’s somewhere in the ether,” she said. “Of course we don’t know where he is and when he will come.”
They are trying to transfer their money to other banks, but they cannot reach it. Some of her clients were unable to pay suppliers. “We’re scared,” she said.
Michael Korn, Aaron Gregg, Lisa Bonos and Joseph Menn contributed to this report.