Investors, Startups Work to Find Cash Lifelines After Silicon Valley Bank Collapse

Investors, Startups Work to Find Cash Lifelines After Silicon Valley Bank Collapse

Silicon Valley Bank

Venture funds extend short-term loans amid cash crunch while some founders plan to use personal funds to cover payrolls

Startup investors scrambled over the weekend to help their portfolio companies meet immediate expenses and to shore up their own access to cash after Friday’s federal seizure of Silicon Valley Bank made some money inaccessible.

Venture-capital giant Andreessen Horowitz said it was helping founders of startups it has invested in find new banks and identify financing alternatives. Other venture leaders also said they were funding payroll for now at their portfolio companies that didn’t move cash out of SVB before it was taken over by the Federal Deposit Insurance Corp. Friday morning.

As they anxiously awaited news of when and how their SVB-based funds will be available, startup executives said they were taking cash-advance loans at steep interest rates, using credit cards to pay bills and negotiating short-term loans with investors to try to bridge a liquidity crunch. Some heads of VC firms and startups said they were already using or preparing to use their own funds to cover the coming week’s payroll. At least two e-commerce startups asked customers to shop more on their sites to keep them afloat.

Cameron Sepah, chief executive of consumer telemedicine startup Maximus, said SVB was the company’s primary bank. On Thursday night, Dr. Sepah attempted to pull out all but $250,000 of the millions of dollars Maximus had with SVB, but the transfers never went through. “We have to open up new bank accounts, new credit cards, switch everything over,” said Dr. Sepah. “Probably every day we owe someone something.”

Maximus has been told they might have access to $250,000 by Monday, that about half of their money could be available by the end of the week and that they could get the rest back in three to six months, Dr. Sepah said. The most immediate need is cash for payroll—Dr. Sepah said he would cover that with his personal funds next week if he has to, and he will consider bridge loans if the timeline to access the funds gets pushed back further.

SVB had grown over four decades to become a linchpin of tech investing. Startups began pulling their money out this past week to avoid potential losses on deposits in excess of the amount insured by the federal government. Those withdrawals, encouraged by some venture investors, sparked a classic bank run. Garry Tan, CEO of Y Combinator, asked founders in the famed startup accelerator to sign a petition to U.S. government representatives asking for small business depositors at Silicon Valley Bank to be made whole.

“Silicon Valley Bank’s failure has a real risk of systematic contagion,” the petition said. “Its collapse has already instilled fear among founders and management teams to look for safer havens for their remaining cash, which can trigger a bank run on every other smaller bank.” 

Sara Mauskopf, CEO and co-founder of a child-care marketplace Winnie, said she needs to have funds available by Monday for next week’s payroll. She said the terms of a loan Winnie had with SVB required the startup to do all of its banking there. As a result, it didn’t keep funds with other financial institutions. The company had a checking account at SVB to pay its bills, as well as a cash-sweep account to earn a little bit of interest, the CEO said. 

“You learn some hard lessons in times like this,” she said. 

For short-term capital, Winnie is taking a small cash-advance loan from Stripe that comes at a steep 10% interest rate, she said. For now, the CEO is grateful that her corporate credit cards from fintech company Brex are working and will allow her to pay the bill for cloud computing to keep the company’s website up. 

“I’m furiously scrambling to come up with cash out of thin air,” Ms. Mauskopf said. “I will have something even if that has to come out of my personal bank account. I’m prepared to make sure my employees get paid,” she said. The company needs less than $250,000 right now, she said, which should be available from the former SVB on Monday, but she is still looking for alternatives as a backup. 

Winnie has 29 employees and had more than two years of runway until the SVB shutdown, she said.

Parker Conrad, the CEO of payments provider Rippling, tweeted that, with cash stuck at SVB, the company used its own balance sheet fund payments through JPMorgan Chase & Co for urgent payroll payments that it handles for its clients. 

Omsom, which sells Asian cooking sauces, emailed customers on Saturday describing the havoc caused by the shutdown of SVB, where the company said it had all of its capital. 

“We’re navigating a recession, the hangover of a pandemic, sociopolitical traumas, and now the second-largest bank failure in American history,” founders of the brand wrote. “Small businesses across the nation are fighting for our lives — so please support us. Stock up on products, purchase gift cards, share our stories — every small act helps,” they wrote. 

Benjamin Miller, chief executive of investment platform Fundrise, said on Twitter Friday evening that the company would be willing to provide bridge funding to SVB clients. In an interview Saturday, he said he had been on the phone for hours with companies looking for funding. “You have to create a program from scratch in 24 hours,” he said.

The experience of talking to the companies has been eye-opening, he said. “It’s cascading. There are big companies I’m talking to, and all their vendors have the same problem and their payroll processing has the same problem. It’s cascading around the ecosystem.” 

Mr. Miller said that he believes providing bridge funding to SVB clients would be low risk because of the assets they have. Silicon Valley Bank held $209 billion in assets as of Dec. 31, according to the Federal Reserve, and is the 16th largest in the U.S. 

Some founders have already received inbound offers from investors including family offices and hedge funds have offered to buy deposit claims stuck at SVB at steep discounts, people familiar with the matter said. 

Venture investors including Andreessen Horowitz have spent the last day surveying their startups about their cash positions and preparing short-term loans for those that need help meeting immediate payroll obligations. Matt Murphy, a partner at Menlo Ventures, said on Saturday that he set up multiple such loans for startups and estimated that around 15% of the firm’s portfolio companies were in need of payroll support. 

Hemant Taneja, a managing partner with venture firm General Catalyst, said close to 10% of its portfolio companies were having payroll disruptions related to SVB. One of its companies was supposed to get acquired in a deal next week is now held up, he said, adding that larger companies aren’t feeling as much of an impact because their cash was spread out among more banks. 

Speaking on Saturday, Mr. Taneja said General Catalyst was still exploring how to help affected portfolio companies, such as by setting up a line of credit against its business to enable it to make short-term loans. “All the firms are scrambling to figure this out.”

General Catalyst was among a group of prominent venture firms that put out a joint statement on Twitter saying that if SVB were to find a buyer, they’d encourage their portfolio companies to resume their banking relationship with them.

“SVB played an important role in the ecosystem,” says Mr. Taneja. “This industry needs a bank like SVB.”

Wall street journal 

Previous Post Next Post