t's a dark day in Silicon Valley.
SVB had long served many VCs, their GPs, founders and employees. It provided debt facilities to many companies, facilitated payroll and bill pay, and handled a broad spectrum of financial services for individuals and entities in tech. The failure of SVB is going to have a massive ripple effect in the tech ecosystem - the markets know this and are reacting accordingly.
For those following, here are some of the direct impacts of this crisis:
1. Many companies who do not even bank with SVB are affected. They may be using a payroll partner- such as Rippling, which uses SVB as their payroll payment infrastructure. Payroll related deposits that are in flight for next week’s payroll may or may not make it. For its part, Rippling has handled the communications and transition gracefully, but moving payroll infrastructure overnight to a new banking partner is a monumental task.
2. Companies that held majority of their assets above $250k at SVB will now have to wait to get their money back. There are high chances that they will retrieve most of that money, however, no one knows when. This, combined with lackluster fundraising markets, is increasing the existential threat for these companies.
3. Companies that had set up debt facilities and lines of credit at SVB will very quickly have to find other alternatives.
4. Clients of SVB who used its wealth management services have additional ripple effects as their relationship might be heavily concentrated with SVB - from debt lending, credit lines, corporate banking, personal mortgages and wealth management are all now under FDIC receivership.
5. Companies that are competitors of SVB are experiencing a deluge of new applications. They have their own share of problems to solve as well - as they need to navigate increased inbounds, maintain compliance and filter new clients so that their exposure to fraud or unknown use cases are limited. If you care enough about compliance, you know that you can’t onboard new businesses without full KYB, which is not something that can be done in seconds- and often requires manual review. So if you are a startup waiting to be onboarded by an SVB competitor, give them some time for due diligence.
What can SVB clients do in the meantime?
- If you had more than $250k in your account (across all your SVB accounts), please call the FDIC at 1-866-799-0959 and let them know.
- Communicate, communicate, communicate. If you will be late running payroll, let your employees know and work closely with your payroll processor to get details on how and when payrolls-in-flight will be handled.
- Communicate with your investors. If you have less than a quarter of runway because your funds are tied, try to secure a bridge loan/ raise emergency equity with your FDIC receivership IOUs as backup.