Engineers at Polymath Robotics were working late Wednesday night on multiple projects when co-founder and CEO Stefan Seltz-Axmacher noticed chatter about Silicon Valley Bank in a YC founder WhatsApp group.
The conversation was related to an article published that day about SVB’s plan to launch a $2.25 billion share sale and an agreement by General Atlantic to buy $500 million of the bank’s common stock in a separate private transaction.
Seltz-Axmacher, as well as hundreds of other founders, couldn’t have predicted what would transpire over the next 36 hours. “There were maybe three to five people saying ‘oh, that’s concerning,’” he said. “The next day, that’s all anyone could talk about.”
On Wednesday evening, Seltz-Axmacher, unprompted by VCs or advisers, transferred about 50% of his startup’s funds out of SVB and into another existing account at Mercury Bank.
“I saw that [article] it was like I don’t know if I’m freaking out or not, but it’s not worth the risk,” he said. “I was thinking you know, this is probably going to be something where everyone makes fun of me for being an early panicky person. And that’s fine because there’s no upside to not being an early person to worry that I won’t get 3.5% on some of our money for two weeks, if I’m wrong.”
Seltz-Axmacher was inundated the following day with calls, emails and text messages about SVB. By midday Thursday, he had received messages that the three of the biggest VC funds had told their companies to pull money out of SVB.
And so he did what dozens of other founders did: He initiated a money transfer, this time another 25% of the remaining funds. After a couple of hours of waiting, it went through. His attempt to move the last of the remaining funds early Friday morning — above the $250,000 that FDIC banks insure — is still pending.
Still, Seltz-Axmacher considers himself one of the lucky ones. He knows of at least two founders who chose to keep their funds in SVB. And while others have managed to get some funds out, the ripple effect of SVB’s downfall is reverberating throughout the tech sector.
With Silicon Valley Bank now being shut down, startup founders who have been unable to access their accounts are getting increasingly nervous about the status of their capital. Top concerns include making payroll and staying afloat as a business.
Use discount code ‘BANKRUN’
Ben Kaufman, former CMO at BuzzFeed and the founder of experiential toy store Camp, e-mailed customers this week asking them to purchase more from the company’s site, according to a screenshot sent to TechCrunch. Users can use code “BANKRUN” for 40% off all online merchandise.
“Camp needs your help,” the email starts. “Unfortunately, we had most of our company’s cash assets at a bank which just collapsed. I’m sure you’ve heard the news.” Kaufman then told people sales from this point forward will deposit into Chase and “allow us to generate the cash needed to continue operations so we can continue to deliver unforgettable family memories.”
24 hours of stress
Bootstrapped founder Ashley Tyrner, CEO of FarmboxRx) says she has spent the past 24 hours unable to access her accounts or the millions of dollars she has in the bank.
Tyrner started Boston-based FarmboxRx, which partners with health insurance plans like Medicare and Medicaid to deliver food as medicine to underserved communities, in 2014 but only became a Silicon Valley Bank customer in 2021. When the SVB news hit on Thursday, Turner decided she wanted to pull her money out of SVB. But no one at FarmboxRx — which has 63 employees — has been unable to log into their accounts.
They have also not been able to reach anyone by phone, claiming the helpline rang busy “and hung up.” Account reps are not responding to calls or emails. The account manager did let FarmboxRX know via text that SVB was “trying to figure it out,” but its wire is still pending.
Fortunately, Tyrner said the company had “diversified” and has money in other banks as well; it’s not at risk of being unable to make payroll.
Said a spokesperson: “There are other companies that have not been as fortunate and will likely go under as a result of SVB crashing.”
March 11, 2023
Keeping some money in
Arnie, a San Francisco-based venture-backed 401(k) provider, has been banking with Silicon Valley Bank since the summer of 2021 when it raised its pre-seed round. Co-founder Eliza Arnold said that since many of Arnie’s investors are international, she went with SVB since it “made international wire transfers simple and easy.”
Company employees were unable to access Arnie’s account at Silicon Valley Bank at all until this morning. “We were frozen out of our SVB account yesterday… and have heard from many clients and investors that they were still able to get wires out, so as of a few hours ago that still seemed possible,” she told TechCrunch on Friday afternoon.
The company has wired some money out, but is keeping “some” in for now — intentionally under the $250,000 FDIC-insured amount. An investor update on Friday afternoon indicated that no more wires are going out today but that the company’s $250,000 will be available on Monday when the bank reopens.
“Like many startups we have automatic payments set up from our SVB account, and we don’t know if those will be going through or not,” Arnold told TechCrunch. “We’re keeping enough in there for now to cover those in case they do, and then setting up other connections simultaneously with our other banks.”
The company’s payroll is an automatic ACH so the company is “waiting to see if that goes through next week when it runs.” In the meantime, it’s talking to payroll provider Gusto “about switching to another bank”
But even before now, she said, Arnie never held all its money at one bank.
“When things started going south several months ago we saw it as a warning sign and decided to distribute our money across several banks and then just transfer internally as needed,” Arnold said. “Right now we’re entirely focused on helping our clients update their banking information so they can make sure there’s no break in their 401(k). No one is sure if ACHs will be making it in or out of SVB for the time being, so we’re working with several other banks to streamline the process for our clients.”
It may be too late
Ciara May, the St. Louis-based founder of the hair care company Rebundle, had just landed in Atlanta last night when she started receiving frantic emails from investors about SVB. She’s been with the bank since 2020, and it’s the only bank her company uses; there’s more than $250,000 in the account, she said. By the time she landed, branches were shut, and wiring thousands of dollars isn’t something one can do over the phone.
Her investors introduced her to a banker who, as of this morning, is trying to help her shuffle her company’s money into a new bank, “but now I’m being told it might be too late,” she said.
She said there’s so much confusion surrounding everything that she’s still unsure what to do. “I guess wires take time, like, to get anything that would be uninsured out.” Indeed, company funds of more than $250,000 within SVB are uninsured and, at this point in time, are frozen for many. May said many within her network are frantically trying to move their money, and she has no idea how business operations will work for the upcoming weeks.
“I never thought about the need to have more than one bank account for a company,” she told TechCrunch. She’s not scared, she said, but looking at the situation overall, “this could end some companies,” she said.
James Oliver, the founder of the Atlanta-based networking app Kabila, is also confused about what is happening. He requested for his funds to transfer to Brex as soon as news of SVB shutting down hit the wires Friday. He’s been with SVB since September and said he had a few thousand in the bank. “It’s everything to us because it’s all we got,” he told TechCrunch.
He’s started thinking hard about operating expenses at his company, saying if his money remains jammed like this, it could pose problems for Kabila, especially when it comes to paying employees their full salaries. His transfer transaction is still pending, though he said he’s more concerned than scared about how this will continue to unravel. He pointed to the VCs and LPs that could have their portfolios wiped and how that would affect founders who are looking to fundraise still.
“We were actually revising our business model to raise a micro venture fund; this takes that shit off the table for us,” he said. “We still have to raise half a million dollars. It’s already hard enough as it is as a founder, 10x harder as a Black founder, but now, does that mean I can’t even go raise money? I don’t understand what all this shit means.”
‘I don’t care about the macroeconomic’
Milo founder and CEO Avni Thompson wants a level set. She took to Twitter to say that she’s supposed to be running payroll today, “I could give a shit about the markets and the “bigger picture” (yes I understand how capital markets work)… This just became life and death for thousands of founders.”
Thompson’s wire eventually went through. She told TechCrunch over DM that “it’s looking like we might have escaped this fate by the skin of our teeth but I need people to understand that this isn’t some fun sideshow. Many good, responsible companies will go down, many people without jobs and founders shattered for no good reason.”
Brian Fritton, the founder of Havoc Shield, which develops cybersecurity programs for small businesses, found out about the current state of SVB from a founder’s text message. Fritton had been heads-down most of the week, focusing on nabbing a large customer and securing a “critical” hire he’d spent months chasing after.
“An investor texted me, ‘Who do you bank with?,” and I see on the news that SVB, the bank every startup banks with, is experiencing a modern-day bank run due to their financial situation, and that big-name VCs are advising companies to pull their money out,” Fritton told TechCrunch.
Complicating matters, Fritton had been on a road trip to Michigan from Chicago and ran into inclement weather, forcing him to pull off the road and spend the night at a Best Western. Close to midnight Thursday, from the Best Western, Fritton called an emergency board meeting to approve temporarily moving millions of Havoc Shield’s dollars to another account for safekeeping. (Havoc Shield has raised $5.2 million in capital since 2019.)
Fritton says he’s hoping everything calms down and that SVB doesn’t freeze withdrawals before the wire gets processed.
“I didn’t sleep much. I’m sitting here waiting to see what happens,” Fritton said.
But wait, there’s more
Some founders only spoke to TechCrunch on the condition of anonymity, as not to stoke fear amongst their employees or worried investors.
One venture-backed founder, who recently raised $3 million in a seed round, said that they were struggling to access anyone at SVB on Thursday in an attempt to wire funds out of the bank. Eventually, they got through via a local representative who told them that the website is spotty due to high volumes of traffic from users. The founder eventually got through and put in the wire of the millions they had in the bank to First Republic Bank.
“We’ll probably wire some, if not all, back when the dust settles,” the founder said, adding that they don’t want to participate in an attempted bank run. Still, they said, “the game theory here is if you don’t, you might lose your company, and if you do, it’s not really that big of a deal.” The entrepreneur did speak about the ethical obligations on not pulling money, but said that “everybody is jittery, everybody is thinking about SBF,” so they ultimately attempted to transfer funds.
The next day, the same founder said that the transfer had not yet gone through. “Everyone is too scattered to even do any contingency planning. If it doesn’t go through we’ll see what we get back from FDIC on Monday and go from there,” they said.
Another founder told TechCrunch that they bank with SVB and “are taking a less alarmist approach despite getting some emails from investors. We’re diversifying where we hold our cash (we’re a credit card company, so we moved some to our sponsor bank.) We feel confident SVB isn’t going anywhere.”
One venture-backed fintech founder told TechCrunch that he hadn’t even heard about what was
happening at Silicon Valley Bank until his phone started “blowing up” on Thursday afternoon with every banker he’d ever spoken to reaching out.
“And I’m like this is so weird because I’m not getting any things from my board from my major investors, not even from my CFO and then I hop on Twitter and that’s when I was like, ‘This is bad,’” he said.
After connecting with the company’s co-founders, CFO and legal counsel and not being able to get a hold of his banker, the founder decided to pull most of his company’s money out of SVB.
“We have a reserve account with Mercury, so I said, ‘let’s just move assets over to Mercury,’ probably against the wishes of my board,” he told TechCrunch.