Hundreds of startups face a crippling cash crunch and an 'extinction-level event' if no one buys Silicon Valley Bank by Monday
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- Silicon Valley Bank's collapse has left hundreds of startups facing a cash crunch and payroll crisis.
- A popular toy store held a 40% off sale to raise funds.
- Their best hope for paying staff is a buyer being found for SVB before markets open on Monday.
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.
Startups scramble for cash
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.
"We literally have no way of paying employees right now," Flow Health CEO Alex Meshkin told Insider.
Some startups took drastic steps on Friday to try and bring cash in. The popular toy store Camp told its customers it was in distress after its funds got trapped by the collapse.
"All of our cash was at SVB and we are trying to build up our balance at Chase," Camp CEO and cofounder Ben Kaufman told Insider via Twitter direct message.
The company announced a 40% off sale in a bid to raise cash from its customers, instructing them to use the tongue-in-cheek code 'BANKRUN' at the checkout.
The ripple effects of SVB's demise are likely to be extensive. According to its website, the bank supported nearly half of US venture-backed startups at the end of December.
In a tweet, startup accelerator Y Combinator's CEO Garry Tan said SVB's collapse was "an *extinction level event* for startups and will set startups and innovation back by 10 years or more."
He told The Wall Street Journal that a survey Friday of its 3,000-odd active companies found almost 400 had a relationship with SVB and more than 100 feared they couldn't make payroll in the next 30 days unless the situation was swiftly resolved. Tan urged people to contact their member of Congress to voice their concern.
A buyout offers a way out
Depositors with SVB have $250,000 of their cash with the lender insured, and that cash should be accessible no later than Monday. The rest is uninsured. Given many founders and startups had millions with SVB, that puts huge sums at risk. Roku for example had close to $500 million deposited with SVB.
The FDIC said on Friday that uninsured depositors will receive a receivership certificate for the remaining funds, but it's unclear when they'll get access to the cash, or how much of it will be returned. Moody's estimated that customers will get back about 80 to 90 cents of every dollar of uninsured deposits.
These startups' best hope is for a buyer for SVB to be found before markets reopen Monday. If no one wants it, the FDIC will to liquidate the bank and sell off its assets to try to make depositors whole again.
"The FDIC will love to have the bank bought off their hands, and I am sure they will work furiously over the weekend to arrange a shotgun marriage," said Sandeep Dahiya, associate professor of finance at Georgetown University's McDonough School of Business, told my colleague Hayley Cuccinello.
In an interview with The Information, Kristine Dickson, CFO of community lender Lead Bank, said it was would be "2,000 times better" if a buyer was found for SVB versus it being dissolved.
"It is a million times better to go that direction, so that is what they will be focused on this weekend," she said.
Prospective buyers are likely to be poring through SVB's accounts while they mull a purchase. Major banks such as Goldman Sachs and JPMorgan as well as regional lenders including Citizens Bank have been suggested as potential saviors for SVB.