Last Thursday, Silicon Valley Bank closed. The Federal Deposit Insurance Corporation (FDIC) was named the receiver. As of this Monday, March 14th, all Silicon Valley Bank (SVB) accounts are accessible to account holders with total banking capacity.
The foreclosure of America’s second-largest bank collapse in American history is making waves across the entire tech industry. Here at digitalundivided, whether you are a founder who banks with Silicon Valley Bank or not, we offer you our moral support during what is potentially an anxiety-provoking time.
“We know many have validated concerns about the future of investment, particularly as we navigate an uncertain financial market.” says digitalundivided’s interim CEO, Brittany Hale. “At digitalundivided, community has been central to our mission to advance inclusion and opportunity in the tech and innovation ecosystem. This includes our founders, investors, and allies alike who are collectively dedicated to moving this system forward — and we will continue to rely on one another in that same capacity.”
Whether or not your startup banked with Silicon Valley Bank, all founders must be well-informed on what the SVB collapse may mean for their companies and know how to communicate with teams on this critical industry issue.
Disclosure: The information provided herein is made available for general informational purposes only and is not intended to constitute specific legal, financial, or business advice or to be a substitute for advice from a qualified counsel or other advisers.
Resources to understand what happened
All founders need to understand how America’s 16th largest bank closed seemingly overnight. This is a more important lesson on how banks use — and invest — deposited money from companies, which can create liabilities.
The short summation is that Silicon Valley Bank placed depositors’ money into treasury and mortgage bonds. When interest rates increased, the value of those bonds plummeted, while Silicon Valley Bank operated at an unrealized loss. This post-tax loss of a substantial $1.8 billion — coupled with Silicon Valley Bank’s immediate call to raise funds to cover losses and provide them with additional liquidity — ignited many prominent venture capitalists, including Peter Theil, to call on their portfolio companies to withdraw their money from Silicon Valley Bank.
This led to a ‘run’ on the bank, with some startups removing as much as $42 billion from the bank on Thursday alone. But because banks only carry so much cash in-house, Silicon Valley Bank didn’t have enough money to pay out their clients. Thus, the FDIC stepped in to regulate the bank, causing the second-biggest bank failure in American history.
Check out the following guides to get a better understanding of how — and why — everything happened as it did:
Resources To Explain The Banking Wake To Your Team
Silicon Valley Bank’s collapse could impact startups and their employees in different ways. Cash is the lifeblood of a startup, and having enough of it to burn means the difference between staying afloat and going under. While the government has stepped in to prevent a potential run on other banks, there are still short-term ways the Silicon Valley Bank collapse might directly impact you, your employees, and the tech industry.
Last week, many startups banking with Silicon Valley Bank expressed anxiety. There was concern about the risk of not paying employees should funds not be recoverable (the government has taken measures to guarantee they are). There was also fear about being able to stay afloat if access to funds was further limited, especially for companies with high burn rates. In a worst-case scenario, there could be a potential loss of jobs and the deportation of immigrant workers (70% of Silicon Valley’s employees were born in another country) should companies be forced to lay people off.
What anxieties remain this week with many industry leaders and their employees — regardless of whether or not their company banks with Silicon Valley Bank, are concerns around the state of their company’s money within banking institutions should contagion set in.
Addressing your employees' concerns over Silicon Valley Bank’s foreclosure is essential for all these reasons. The good news is that heads of companies can rely on a few guides on how to have these difficult but essential conversations with employees:
Resources To Claim Your Money
First and foremost, reference the FDIC website. This website supports account holders and those with outstanding claims from businesses with Silicon Valley Bank accounts. The FDIC is constantly updating this website with the latest information about Silicon Valley Bank, including transferring all insured and uninsured deposits from Silicon Valley Bank into a newly created FDIC-operated bridge bank. As of Monday, March 13th, all depositors should have full-service access to their accounts.
Gusto, a payroll and employee benefits platform, has provided a complete list of FDIC Resources for quick access, including a claims portal and FAQ pages. You can check out the full Gusto Silicon Valley Bank resource guide here or access quick reference points below:
Resources To Plan For The Weeks (and Months) ahead
The collapse of SVB has placed many investors, founders, and companies on edge about the state of America’s financial institutions. Until SVB has a buyer, many founders and startups may worry about how to plan for their financial future in the weeks and months ahead.
The following is a curated list of resources for founders interested in understanding how to plan for their startup’s financial future.