Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

Hundreds of startups face a crippling cash crunch and an 'extinction-level event' if no one buys Silicon Valley Bank by Monday
Insider ^ | 3/11/23

Posted on 03/11/2023 12:09:25 PM PST by EBH

Hundreds of startups face a massive cash crunch if the search for a buyer for Silicon Valley Bank drags into next week.

The Federal Deposit Insurance Corporation (FDIC) took control of SVB Friday after it was shut down by California regulators when a failed $2.3 billion capital raise sent its stock crashing.

It leaves hundreds of startups that deposited their cash with the bank in turmoil, as they try to continue operating while millions in funds are locked up.

In the meantime, signs of stress among SVB's entrepreneurial clients are beginning to emerge.

The need for startups to make payroll is one being echoed across the VC ecosystem.

In a tweet, founder Nikita Bier said: "The number of growth stage companies that had their cash at SVB is huge. Making payroll next week is going to be a s---show."

Sam Lessin, a partner at Slow Ventures, told CNBC Friday a founder he had spoken to planned to cover payrolls personally and "figure it out from there."

Even startups that didn't bank directly with SVB have been hit by its collapse. My Insider colleagues April Joyner and Madeline Renbarger reported the healthtech startup Flow Health used Rippling, which held an account with SVB, as its payroll provider.

(Excerpt) Read more at businessinsider.com ...


TOPICS: Business/Economy; Extended News
KEYWORDS:
Navigation: use the links below to view more comments.
first previous 1-2021-4041-6061-75 next last
To: Mozzafiato
Many of these startups spend like drunken sailors since the venture capitalist money is freeflowing.

Only imbecilic incompetent startups would do this. The more VC money you take in, the more you dilute the worth of your OWN employee shares in your startup. I've never seen it.

Lavish food spreads,

There is food, to be sure. It's a cheap way of getting engineers to work morning, noon, and night on projects critical to getting the company to revenue.

private jet flights, exorbitant salaries and compensation

You have to attract superstars that not only can hit the ground sprinting, but also attract other great talent. That takes larger salary and compensation - FOR THE SUPERSTARS. Without the superstars, you have no breakout product, or can't execute to bring it to market.

But "regular", hard-working execution engineers are also hired - usually at a lower than normal salary, with stock options as enticements - they take the risk that the long hours and lower salary will pay off via IPO or company purchase.

for still unprofitable companies.

Yes, they're startups. It's an amazing horrible fight to get to revenue at all, let alone profitability. That's why VC and Angel investors exist.

Forgive me if I don’t feel sorry that they “can’t make payroll” this week.

So the ability of regular people to get the paychecks they were promised, so they can pay their mortgage and other bills, is beyond your empathy. Nice.

Just curious - what abacus are you browsing FR on?

-Yossarian
(Silicon Valley Survivor)

21 posted on 03/11/2023 1:00:54 PM PST by Yossarian
[ Post Reply | Private Reply | To 9 | View Replies]

To: EBH
At the end of last year SVB had uninsured deposits in its US offices of $151.5 billion, equal to 88% of its total deposits of $173 billion …

I’m still not sure how this is a crisis. A report I saw yesterday indicated that SVB had $220 billion in assets on its balance sheet at the end of last year.

22 posted on 03/11/2023 1:01:04 PM PST by Alberta's Child
[ Post Reply | Private Reply | To 18 | View Replies]

To: bankwalker

“How many of these startups” are run by woke crazies?

Their anti-white anti-straight hate has ruled the day—until now.

Karma time!


23 posted on 03/11/2023 1:03:26 PM PST by cgbg (Claiming that laws and regs that limit “hate speech” stop freedom of speech is “hate speech”.)
[ Post Reply | Private Reply | To 5 | View Replies]

To: Yossarian; Mozzafiato
Oh, and I forgot - I've NEVER seen private jet flights.

Maybe a founder that ALREADY made a lot of money before joining that startup MIGHT take a private jet - but that's their own fortune at work.

Trust me, getting a startup to spend extra money is like pulling hen's teeth!

24 posted on 03/11/2023 1:05:08 PM PST by Yossarian
[ Post Reply | Private Reply | To 21 | View Replies]

To: KarlInOhio
I'm shocked that SVB didn't learn the lesson that you have to match terms of assets and liabilities.

Part of the problem is that it’s impossible to do this during periods of rapid changes in interest rates. That’s because retail banking — especially mortgage lending — is one of the few areas where the rules are rigged in favor of the customers and AGAINST the banks.

Case in point … There is no such thing as a fixed-rate mortgage. Sure, you can sign a mortgage with a 30-year amortization at a fixed interest rate. But you can always refinance that mortgage at any time. The lender doesn’t have this option. So at a time like this with rising interest rates, you have banks or mortgage bond holders sitting on mortgages like mine (less than two years into a 30-year mortgage at 3.1%) while the prevailing rates on mortgages have climbed up to the 7% range.

I have an open offer to my bank. I will pay the entire balance in full if they will accept 20 cents on the dollar. :-)

25 posted on 03/11/2023 1:08:43 PM PST by Alberta's Child
[ Post Reply | Private Reply | To 19 | View Replies]

To: Yossarian

“I’m not sure just how ‘woke’ SVB is/was”

Well—we can fix that—I mean, what are FRiends for?

https://www.svb.com/about-us/living-our-values

They were “agents of change”.

Make sure you read their ESG report to learn more!

(Short version—woke zombies—the world is a better place today with them gone.)

As for any “conservatives” who work there, they have been hiding under their desks in terror for fear of being outed and canceled.


26 posted on 03/11/2023 1:09:09 PM PST by cgbg (Claiming that laws and regs that limit “hate speech” stop freedom of speech is “hate speech”.)
[ Post Reply | Private Reply | To 7 | View Replies]

To: EBH

The dumbest people in the world are those who think they are experts in the financial world.


27 posted on 03/11/2023 1:12:11 PM PST by CIB-173RDABN (I am not an expert in anything, and my opinion is just that, an opinion. I may be wrong.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: cgbg
Yeah, ESG is a menace. I'm contracting right now, so I just blithely ignore any DEI mail that somehow ends up in my mailbox. I ignore everything but the deliverables my bosses ask of me, and that seems to work.

ESG is bad in the Valley, but still, engineers got to pay bills. Most ignore it as much as possible.

28 posted on 03/11/2023 1:12:29 PM PST by Yossarian
[ Post Reply | Private Reply | To 26 | View Replies]

To: Alberta's Child

Excellent post.

Decades ago I was in a MBA course on banking.

The professor always warned us—when interest rates rise dump your bank stocks and if you work for a bank get out your resume.


29 posted on 03/11/2023 1:15:05 PM PST by cgbg (Claiming that laws and regs that limit “hate speech” stop freedom of speech is “hate speech”.)
[ Post Reply | Private Reply | To 25 | View Replies]

To: CIB-173RDABN

There are real financial experts.

You will never hear from them.

They spend their time getting rich from their knowledge—and their mouths shut.

They live modestly and never talk about money.

The financial “talking heads” are worse than useless—at times they can be contrary indicators.


30 posted on 03/11/2023 1:18:52 PM PST by cgbg (Claiming that laws and regs that limit “hate speech” stop freedom of speech is “hate speech”.)
[ Post Reply | Private Reply | To 27 | View Replies]

To: cgbg
Thank you!

I’ve been following your posts on various SVB threads, and I think you could give an MBA-level course on many financial subjects right here on FR. :-)

31 posted on 03/11/2023 1:21:42 PM PST by Alberta's Child
[ Post Reply | Private Reply | To 29 | View Replies]

To: EBH
"extinction level event" -- How dramatic!

A crisis to be sure for companies that didn't have the inside information the bank officers had so they could pull their money ahead of the failure as the bank officers did when they sold their stock, but I wonder if ol' Garry Tan said the same thing when his favorite politicians and unelected bureaucrats caused a whole bunch of "extinction level events" with their deliberately imposed lockdowns, blaming it, of course, on the Fauci Flu rather than on themselves.

32 posted on 03/11/2023 1:27:15 PM PST by glennaro (Never give up ... never give in ... never surrender ... and enjoy every minute of doing so.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: glennaro

See post 29.

Everyone in the banking industry knows the situation right now.

It is the “innocent civilians” outside the industry who will be left holding the bag.


33 posted on 03/11/2023 1:32:21 PM PST by cgbg (Claiming that laws and regs that limit “hate speech” stop freedom of speech is “hate speech”.)
[ Post Reply | Private Reply | To 32 | View Replies]

To: Yossarian

All startups that followed the “not all eggs in one basket” principle will be alright on this. Suppose they need to have 1M every other week to meet payroll obligations where 200k goes to taxes, 100k goes to insurance/401k, and 700k goes to employees. If you have 3 banks each with an account for payroll checks then there is no risk of delay as you put over 233.34k in each. You also identify the top earners and notify them long before a crisis that their paychecks are most at risk of delays in case of any bank hiccups and that should be less than 20% of the staff. In most cases the reputable ones will have a founder/CEO with several sources of instant liquidity, like home equity lines, Treasury direct account, and other sources available to do infusions to cover a couple of payrolls. If they don’t then they aren’t reputable and deserve to fail.


34 posted on 03/11/2023 1:35:58 PM PST by Degaston
[ Post Reply | Private Reply | To 21 | View Replies]

To: EBH

Not to worry. We taxpayers will bail them out.

Oh. And don’t forget to pay your fair. Only a few more weeks to file.


35 posted on 03/11/2023 1:38:42 PM PST by Organic Panic (Democrats. Memories as short as Joe Biden's eyes)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Degaston

“If they don’t then they aren’t reputable and deserve to fail.”

Yup—this is like the Wizard of Oz.

The curtain is about to open.....


36 posted on 03/11/2023 1:40:39 PM PST by cgbg (Claiming that laws and regs that limit “hate speech” stop freedom of speech is “hate speech”.)
[ Post Reply | Private Reply | To 34 | View Replies]

To: Degaston
Sounds fair.

Honest question - I'm an engineer, not a financial guy - how many payroll processing firms work with multiple bank accounts to pull on?

I can see how, given the massive load of work that goes on in a startup, that such a dumb mistake of "all eggs in one basket" could happen.

Often the CFO guy in a startup is recommended by your VC, and the founders are 99% of time are subject-matter / technical guys. That's why it's really important to not have stupid VC funding you, so they guide you right!

37 posted on 03/11/2023 1:44:59 PM PST by Yossarian
[ Post Reply | Private Reply | To 34 | View Replies]

To: Yossarian
I'm not sure just how 'woke' SVB is/was

Sick as 💩 woke. ESG, Mother Gaia, LGBTQ+, the entire alphabet soup woke. They focused on woke, not business fundamentals. That’s what happens when you hire faggots and leftist females that can’t look at their own coochie and tell you they are a woman.

38 posted on 03/11/2023 1:47:03 PM PST by ConservativeInPA (Stupidly is a moral problem, not an intellectual problem. )
[ Post Reply | Private Reply | To 7 | View Replies]

To: cgbg

The financial “talking heads” are worse than useless—at times they can be contrary indicators.

I agree with all your statements.


39 posted on 03/11/2023 1:50:38 PM PST by CIB-173RDABN (I am not an expert in anything, and my opinion is just that, an opinion. I may be wrong.)
[ Post Reply | Private Reply | To 30 | View Replies]

To: Alberta's Child
Yeah, I had a sweet relocation mortgage deal from my company eight years ago.

I took a 5/15 ARM at 2%, knowing that I would refinance after the 5th year when the rate goes adjustable (based on LIBOR). Sure enough, as soon as the mortgage went adjustable, my rate was increased by the maximum 2% to 4%.

This was in March 2020, just before the COVID-19 madness began. I was able to do a loan modification (not a refinance) for the remaining 10 years at 2.625%. I could pay off the remaining balance today, but I'm making more money in interest on my portfolio.

-PJ

40 posted on 03/11/2023 1:55:36 PM PST by Political Junkie Too ( * LAAP = Left-wing Activist Agitprop Press (formerly known as the MSM))
[ Post Reply | Private Reply | To 25 | View Replies]


Navigation: use the links below to view more comments.
first previous 1-2021-4041-6061-75 next last

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson