Silicon Valley investors and founders express shock at SVB collapse

Venture capitalists and technology executives are scrambling to make sense and account for the potential repercussions of the sudden implosion of Silicon Valley Bank.

Federal Deposit Insurance Corp said on Friday that the US federal regulator is dead Silicon Valley Bank, the premier financial institution for Silicon Valley technology startups for the past 40 years. SVB’s collapse represents the biggest banking failure since the 2008 global economic crisis.

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Many venture investors and technology executives expressed surprise to CNBC, some compared the current SVB debacle with Lehman Brothers, which filed for bankruptcy in 2008. All investors and requested anonymity to discuss issues that could affect the company and its employees.

The general sentiment is that SVB did a poor job of communicating with clients when it announced earlier this week that it would raise $500 million from the venture capital firm General Atlantic while also unloading its holdings of approximately $21 billion at a loss of $1.8 billion. One VC said the fact for SVB to announce that they raise money while at the same time essentially saying that everything is “searching”, apparently triggering people’s memories of Lehman Brothers, which they remember doing the same at the time.

“So unfortunately, he repeated the mistakes of history and anyone who lived in that era said, ‘Hey, maybe he was not good; we were told the last time,'” said the VC.

SVB tried to allay fears of financial unsoundness until Thursday afternoon.

In one email SVB sent to customers, a copy of which was obtained by CNBC, the bank described the rumors about the problem as “buzz about SVB in the market” and tried to assure customers that it “launched a series of strategic actions to strengthen its financial position, improve profits and increase financial flexibility now and in the future.”

“It’s business as usual at SVB,” the bank said in an email to the startup. It added at the end of the email that “Furthermore, we have a 40-year history of navigating bear and bull markets and have developed superior risk mitigation capabilities to ensure long-term financial health.”

Another venture capitalist said a representative from Silicon Valley Bank called the company on Thursday to allay fears, but the company’s CFO “didn’t feel comfortable, at least.”

However, one tech CEO sympathized with the bank’s plight, asking, “What message will assure you that your money is safe when someone tells you there is fraud? There is no message because this is not messaging. The prisoner’s dilemma problem is that everyone now has to try and imagine what other people would do.”

When asked for comment, a representative from SVB referred CNBC back to the FDIC announcement. “The FDIC will share additional information as it becomes available.”

Some venture capitalists quickly told their portfolio companies to move money from Silicon Valley Bank to other banks, including Merrill Lynch, First Republic, and JP Morgan, so they could pay their employees on time next week.

One AI startup executive noted that the company’s chief financial officer was quick to deal with the situation, and had enough money to pay employees on time. Still, SVB’s collapse left a bad taste in the mouths of executives, who said the bank’s collapse felt like “unnecessary hysteria.”

“It makes me disappointed in our ecosystem,” said the startup’s CEO.

Many venture capitalists echoed the startup CEO’s sentiment that SVB’s collapse seems like a possible prediction of unnecessary panic. Some liken it to the “banks led by Twitter,” as the tech community takes to social media to spread information, and often panic. One prominent tech CEO told CNBC that many startup founders use Twitter and Meta WhatsApp’s communication services to send updates quickly.

One venture capitalist said someone screamed “fire in a crowded theater where there’s no fire.”

“And when everyone ran to the door, they knocked out the oil lamp and there was a fire and it burned the building,” the venture capitalist said. “And the people standing outside were like, ‘see I told you.'”

As panic spread and the FDIC stepped in, companies with locked-in funds reported problems getting cash and paying payroll.

One startup founder told CNBC that “everyone is scrambling.” He said he’s spoken to more than 30 other founders, and that both large and small companies are affected.

The founder added that the CFO of the unicorn startup had tried to transfer more than $45 million from SVB to no avail. Another company with 250 employees told the founder that SVB has “all our cash.”

Another founder said his company’s payroll provider moved from SVB to another bank on Thursday, which meant payroll didn’t open for employees as planned on Friday morning. He said he has been in touch with employees to ease concerns as much as possible, and he expects paychecks to arrive by Friday.

Otherwise, the company plans to wire employees who need the funds immediately, according to an internal memo seen by CNBC.

“Many people live on the dollar in terms of budget, and they cannot tolerate a 24-hour delay in their salary,” said the founder.

Jean Yang, the founder and CEO of the Akita monitoring company, tried to make a wire transfer to make sure he could pay the salaries of his seven-person team, then drove to the SVB location on Sand Hill Road in Menlo Park, a street inhabited by businesses. – capital office.

There, he asked the teller for a bank transfer and was told the branch couldn’t do it. So he asked for a cashier’s check for $1 million. After 20 or 25 minutes the bank handed over.

Others in line were taking out the entire balance. “I regret not taking all the balance now,” he said.

In Frida, Yang returned to the Silicon Valley Bank branch 15 minutes before it opened to withdraw the remaining money. A line of about 40 people had formed. Rumors spread among those waiting. One person shared a tweet on his phone indicating that bank employees had been told not to work.

Then an employee came out of the office and handed out about 15 copies of an article from the Federal Deposit Insurance Corporation about the agency’s response to the bank’s situation. The line broke up as people realized the fate of the bank.

Later on Friday one of the early investors called Yang and offered to help Akita make a salary, he said, “I hope the government saves people over $250,000,” he said. “I know people who have tens of millions, hundreds of millions with SVB. I think if they only get $250,000, their company will be wiped out.”

“Right now, everyone is waiting for when the Treasury is going to step in,” another venture investor said. “I hope so [California Governor] Gavin Newsom called Biden today and said, ‘This is systemic in our area, but you can see the ripple effect in other banks and equities and bonds.’ If it is systemic, I think the Treasury will step in like 2007 and ’08 and protect money market accounts, plus it will protect depositors.

This person added, “If it doesn’t go in, then people will think that the money is gone. That will have a big impact on the business environment.”

Watch: The CEO’s reaction to the closing of Silicon Valley Bank