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SILICON VALLEY BANK’S DEMISE DISRUPTS THE DISRUPTORS IN TECH

By MICHAEL LIEDTKEyesterday

1 of 6
Notices are posted at the entrance to a Silicon Valley Bank Private branch in
San Francisco, Monday, March 13, 2023. (AP Photo/Jeff Chiu)

Silicon Valley Bank’s collapse rattled the technology industry that had been the
bank’s backbone, leaving shell-shocked entrepreneurs thankful for the government
reprieve that saved their money while they mourned the loss of a place that
served as a chummy club of innovation.

“They were the gold standard, it almost seemed weird if you were in tech and
didn’t have a Silicon Valley Bank account,” Stefan Kalb, CEO of Seattle startup
Shelf Engine, said during a Monday interview as he started the process of
transferring millions of dollars to other banks.

The Biden administration’s move guaranteeing all Silicon Valley Bank’s deposits
above the insured limit of $250,000 per account resulted in a “palpable sigh of
relief” in Israel, where its booming tech sector is “connected with an umbilical
cord to Silicon Valley,” said Jon Medved, founder of the Israeli venture capital
crowdfunding platform OurCrowd.

But the gratitude for the deposit guarantees that will allow thousands of tech
startups to continue to pay their workers and other bills was mixed with moments
of reflection among entrepreneurs and venture capital partners rattled by
Silicon Valley Bank’s downfall.

The crisis “has forced every company to reassess their banking arrangements and
the companies that they work with,” said Rajeeb Dey, CEO of London-based startup
Learnerbly, a platform for workplace learning.

Entrepreneurs who had deposited all their startups’ money in Silicon Valley Bank
are now realizing it makes more sense to spread their funds across several
institutions, with the biggest banks considered safer harbors.

Kalb started off Monday by opening an account at the largest bank in the U.S.,
JP Morgan Chase, which has about $2.4 trillion in deposits. That’s 13 times more
than the deposits at Silicon Valley Bank, the 16th largest in the U.S.

Bank of America is getting some of the money that Electric Era had deposited at
Silicon Valley Bank, and the Seattle startup’s CEO, Quincy Lee, expects having
no difficulty finding other candidates to keep the rest of his company’s money
as part of its diversification plan.

“Any bank is happy to take a startup’s money,” Lee said.

Even so, there are fears it will be more difficult to finance the inherently
risky ideas underlying tech startups that became a specialty of Silicon Valley
Bank since its founding over a poker game in 1983, just as the advent of the
personal computer and faster microprocessors unleashed more innovation.

Silicon Valley quickly established itself as the “go-to” spot for venture
capitalists looking for financial partners more open to unconventional business
proposals than its bigger, more established peers who still didn’t have a good
grasp of technology.

“They understood startups, they understood venture capital,” said Leah Ellis,
CEO and co-founder of Sublime Systems, a company in Somerville, Massachusetts,
commercializing a process to make low-carbon cement. “They were woven into the
fabric of the startup community that I’m part of, so banking with SVB was a no
brainer.”

Venture capitalists set up their accounts at Silicon Valley Bank just as the
tech industry started its boom and then advised the entrepreneurs that they
funded to do the same.

That cozy relationship came to an end when the bank disclosed a $1.8 billion
loss on low-yielding bonds that were purchased before interest rates began to
spike last year, raising alarms among its financially savvy customer base who
used the fruits of technology to spread warnings that turned into a calamitous
run on deposits.

Bob Ackerman, founder and managing director of venture funder AllegisCyber
Capital, likened last week’s flood of withdrawal demands from Silicon Valley
Bank to a self-inflicted wound by “a circular firing squad” intent on “shooting
your best friend.”

Many of Silicon Valley Bank’s roughly 8,500 employees now find themselves
hanging in limbo, too, even though government regulators now overseeing the
operations have told them they will be offered jobs at 1.5 times their salaries
for 45 days, said Rob McMillan, who had worked there for 32 years.

“We don’t know who’s going to pay us when,” McMillan said. “I think we all
missed a paycheck. We don’t know if we have benefits.”

TECHNOLOGY

NOT MAGIC: OPAQUE AI TOOL MAY FLAG PARENTS WITH DISABILITIES

A 2ND WAVE OF LAYOFFS AT META; 10,000 JOBS ARE CUT

SAMSUNG TO INVEST $230 BILLION TO BUILD "MEGA" CHIP CLUSTER

ELECTRIC CAR STORES WILL BE RESTRICTED IN MISSISSIPPI

Even though all of Silicon Valley Bank’s depositors are being made whole, its
demise is expected to leave a void in the technology sector that may be
difficult to fill. In an essay that he posted on his LinkedIn page, prominent
venture capitalist Michael Moritz compared Silicon Valley Bank to a “cherished
local market where people behind the counters know the names of their customers,
have a ready smile but still charge the going price when they sell a cut of
meat.”

Silicon Valley Bank is fading away at a time when startups were already having a
tougher go at raising money, with a downturn in technology stock values and a
steady rise in interest rates causing venture capitalists to retrench. The bank
often helped fill the financial gaps with one of its specialties — loans known
as “venture debt” because it was woven into the funding provided by its venture
capitalist customers.

“There’s going to be a lot of great ideas, a lot of great teams that don’t get
funding because the barriers to entry are too high or because there are not
enough people who are willing to invest,” said William Lin, an investor in the
cybersecurity startup Symmetry Systems and a venture partner at ForgePoint, a
venture capital firm.

With Silicon Valley Bank gone and venture capitalists pulling in their reins,
Lin expects there will be fewer startups getting money to pursue ideas in the
same fields of technology. If that happens, he foresees a winnowing of
competition that will eventually make the biggest tech companies even stronger
than they already are.

“There’s a real day of reckoning coming in the startup world,” predicted Amit
Yoran, CEO of the cybersecurity firm Tenable.

That may be true, but entrepreneurs like Lee and Kalb already feel like they had
been through an emotional wringer after spending the weekend worrying that all
their hard work would go down a drain if they couldn’t get their money out of
Silicon Valley Bank.

“It was like being stuck inside a doomsday loop,” Lee said.

Even as he focuses on growing Shelf Engine’s business of helping grocers
managing their food orders, he vowed not to forget “a very hard lesson.”

“I obviously now know banks aren’t as safe as I used to think they were,” he
said.

___

Associated Press writers Ilan Ben Zion in Jerusalem; Ami Bentov in Tel Aviv;
Kelvin Chan in London; Jennifer McDermott in Providence, Rhode Island; Frank
Bajak in Boston and Cathy Bussewitz and Cora Lewis in New York contributed to
this story.

___

This story has been updated to correct William Lin’s title. He’s an investor in
the cybersecurity startup Symmetry Systems and a venture partner at ForgePoint,
a venture capital firm, not co-founder of Symmetry Systems and a partner
ForgePoint.

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After two historic US bank failures, here’s what comes nextWASHINGTON (AP) — Two
large banks that cater to the tech industry have collapsed after a bank run ,
government agencies are taking emergency measures to backstop the financial
system, and President Joe Biden is reassuring Americans that the money they have
in banks is safe.March 13, 2023

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* After 2 banks collapse, what comes next?
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* March Madness bracket

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