Startup investors scrambled this weekend to help their portfolio companies meet immediate expenses and shore up their own access to cash after Friday’s federal seizure of Silicon Valley Bank made some of the cash inaccessible.
Venture capital giant Andreessen Horowitz said it helps founders of startups it has invested in find new banks and identify funding alternatives. Other company executives also said they were funding the payroll for now to their holding companies which did not take cash out of SVB before it was taken over by the Federal Deposit Insurance Corp. Friday morning.
As they anxiously waited to find out when and how their SVB-based funds would be available, startup executives said they were taking cash advances at high interest rates, using credit cards to pay bills and were negotiating short-term loans with investors to try to fill a cash crunch. Some venture capital firm and startup executives said they are already using or preparing to use their own funds to cover payroll for the coming week. At least two e-commerce startups have asked customers to make more purchases from their sites to keep them afloat.
Cameron Sepah, chief executive of consumer telemedicine startup Maximus,
said SVB was the main bank for the company. On Thursday night, Dr Sepah attempted to withdraw all but $250,000 of the millions Maximus had with SVB, but the transfers never went through. “We have to open new bank accounts, new credit cards, change everything,” Dr Sepah said. “Probably every day we owe someone something.”
Maximus was told they could have access to $250,000 by Monday, about half of their money could be available by the end of the week, and they could get the rest back in three to six months, said Dr. Sepah. The most immediate need is payroll money – Dr. Sepah said he would cover this with his personal funds next week if needed, and would consider bridging loans if the access delay to funds was postponed.
SVB has grown over four decades to become a mainstay of technology investing. The startups began withdrawing their money last week to avoid potential losses on deposits exceeding the federally insured amount. These withdrawals, encouraged by some venture capitalists, triggered a classic bank run. Garry Tan, CEO of Y Combinator, has asked the founders of the popular startup accelerator to sign a petition to US government officials demanding compensation for small business depositors at Silicon Valley Bank.
“The failure of Silicon Valley Bank presents a real risk of systematic contagion,” the petition states. “Its collapse has already sown fear among founders and management teams to seek safer havens for their remaining cash, which may trigger a bank run on all other smaller banks.”
Sara Mauskopf, CEO and co-founder of a Winnie child care marketplace, said she needs to have funds by Monday for next week’s payroll. She said the terms of a loan Winnie took out with SVB required the startup to do all of its banking there. As a result, he did not keep any 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 some interest, the CEO said.
“You learn hard lessons in times like this,” she said.
For short-term capital, Winnie takes a small cash advance loan from Stripe that comes with a high interest rate of 10%, she said. For now, the CEO is grateful her corporate credit cards from fintech company Brex are working and will help pay the cloud computing bill to maintain the company’s website.
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“I’m scrambling furiously to find money out of thin air,” Ms Mauskopf said. “I will have something even if it has to come from my personal bank account. I am ready to make sure my employees get paid,” she said. The company needs less than $250,000 in this moment, 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 trail until the SVB closed, she said.
Parker Conrad, CEO of payments provider Rippling, tweeted that, with cash tied up at SVB, the company used its own balance sheet fund payments through JPMorgan Chase & Co for urgent payroll payments it handles for its clients. .
Omsom, which sells Asian cooking sauces, sent an email to customers on Saturday describing the devastation caused by the closure of SVB, where the company said it holds all of its capital.
“We are going through a recession, a pandemic hangover, socio-political trauma and now the second largest bank failure in American history,” the brand’s founders wrote. “Small businesses across the country are fighting for our lives – so please support us. Stock up on products, buy gift cards, share our stories – every little bit counts,” they wrote.
Benjamin Miller, managing director of investment platform Fundrise, said on Twitter late Friday that the company would be willing to provide bridge financing to SVB clients. In an interview on Saturday, he said he spent hours on the phone with companies looking for funding. “You have to create a program from scratch in 24 hours,” he said.
The experience of talking to companies has been eye-opening, he said. “It’s cascading. There are big companies I talk to, and all of their vendors have the same problem and their payroll processing has the same problem. It’s cascading through the ecosystem.
Mr. Miller said he believed providing bridge financing to SVB customers would be low risk because of the assets they have. Silicon Valley Bank held $209 billion in assets as of December 31, according to the Federal Reserve, and is the 16th largest in the United States.
Some founders have already received inbound offers from investors, including family offices and hedge funds, who have offered to buy escrow deposit claims at SVB at steep discounts, people familiar with the matter said.
Venture capitalists, including Andreessen Horowitz, have spent the past day probing their startups for cash positions and preparing short-term loans for those who need help meeting immediate payroll obligations. Matt Murphy, a partner at Menlo Ventures, said on Saturday he had several such loans in place for startups and estimated that about 15% of the firm’s portfolio companies needed salary support.
Hemant Taneja, managing partner at venture capital firm General Catalyst, said nearly 10% of companies in his portfolio were experiencing payroll disruptions related to SVB. One of his companies was due to be acquired in a deal next week is now stalled, he said, adding that big companies weren’t feeling as much impact because their cash was spread across several banks .
Speaking on Saturday, Mr Taneja said General Catalyst was still considering how to help affected portfolio companies, such as setting up a line of credit on his business to allow him to provide short-term loans. “All companies are scrambling to figure this out.”
General Catalyst was among a group of leading venture capital firms that issued a joint statement on Twitter saying that if SVB were to find a buyer, they would encourage their holding companies to resume their banking relationship with them.
“SVB has played an important role in the ecosystem,” says Taneja. “This industry needs a bank like SVB.”
Write to Berber Jin at berber.jin@wsj.com, Katherine Bindley at katie.bindley@wsj.com and Yulia Chernova at yuliya.chernova@wsj.com
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