When Silicon Valley Bank failed in a whirlwind on Friday, startup founders who had funds in the bank were left wondering what will happen to the money they thought was safe. And for some, the fate of those funds could mean whether or not they’ll be able to continue paying their employees.
SVB, one of the most prolific lenders and banking institutions catering to a large swath of the startup and venture community, was closed by a regulator around midday New York time on Friday after customers sought to take out funds from the bank in a hectic roughly 48 hour bank run. SVB was taken over by the Federal Deposit Insurance Corporation as its receiver, and while insured deposits—those $250,000 and under—will be available for depositors on Monday, per an FDIC press release, the big question for the startups who banked with SVB is, what happens to the funds over that limit?
One startup founder who banked with SVB told Fortune in a private message that, hours after the bank failed, “Our heads are spinning over here—not entirely sure what happens next.”
Another founder told Fortune in a private message that “My take is the entire ecosystem is effectively paralyzed.” They said that the focus right now is freeing up “cash basically, however you can, and make sure you can pay your people.”
Meanwhile some venture capital investors are also unsure what’s going on with their portfolio companies and the startup community at large: One VC told Fortune that the question of what happens with startups’ funds over that insured amount and whether those funds are locked up is the “question of the day,” adding that this weekend “will be critical."
The FDIC said SVB had $209 billion in assets and $175.4 billion in deposits when they seized it. It’s unclear exactly how much money was in uninsured deposits at SVB as of Friday, but per the company’s 2022 annual report filing, they had just over $151 billion in uninsured deposits in U.S. offices. In other words, it appears more than 90% of the deposits are uninsured.
Per the FDIC, those with insured deposits ($250,000 or less) will have access to those “no later than” Monday. “The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.” The agency recommends those with more than $250,000 in an account should call the FDIC toll-free at 1-866-799-0959.
But some founders are not only unsure of what’s going to happen with those uninsured funds, but don’t have time to wait around to find out. One founder of an early stage company told Fortune on the condition of anonymity that they believed the situation could be dire for their startup.
"My company is done,” they said. “I will be able to make one more payroll, or two more payrolls, and then it's over.” They said that since the FDIC announcement came out, “no one knows what it means. And [there's] all kinds of talk: all the groups, all the Slacks, all the email lists…all the founders have pretty much been trying to help each other.” The founder blamed VCs for not handling the situation well, and likened it to leaving startups to “fight over the scraps and get Taylor Swift tickets on Ticketmaster.”
Meanwhile another founder of an early stage company who spoke with Fortune said they had about $1 million altogether at SVB, and were expecting to get the $250,000 insured portion back on Monday. They said that considering they had a small team, that sum would be enough for about three months of runway. But broadly, “I think everyone's nervous about the March 15th payroll, and short term liquidity,” they said.
The founder said they opened a Chase account in person on Friday, and said that one of their investors had told them to let them know if they had a “near term operating cash need,” but that they didn’t know what that meant yet. Another big question they had was whether the funds they had in a money market account at SVB was “administered by BlackRock or another large institution and SVB is the custodian, or is it actually SVB’s money?”
Silicon Valley is all wondering who might step in to buy up SVB’s assets—and when. And some founders wondered what would happen to the venture debt that startups had with SVB.
“This was like Goldman of the bulge bracket banks going down,” the early stage founder with $1 million at SVB said. They added that “if Monday happens and it's still this, like, 'Well, it's in receivership and who knows when the funds will be unlocked,' and there's just like, no line of sight on the rest of the money above $250,000, then that's when I get concerned.”
