By Krystal Hu, Anna Tong, Jeffrey Dastin and Greg Bensinger
(Reuters) – A wave of relief swept Silicon Valley on Sunday following a tense weekend of board meetings, contingency funding plans and pleas after regulators stepped in to halt the region’s embattled eponymous bank.
Banking regulators said on Sunday night that depositors at Silicon Valley Bank, which closed on Friday, would be able to access their money on Monday, allaying fears that startups would struggle to pay their employees this week. The bank’s closure was due to interest rate hikes that hurt start-up customers and a failed capital raising attempt, which led to deposit withdrawals.
Despite the palpable relief, questions remained about the financing climate for startups, which had come to depend on Silicon Valley Bank for support to support unproven companies that shunned bigger banks. And the bank still hadn’t found a buyer by Sunday, which was a hope for many venture capital firms and tech founders hungry for positive news.
“This is a huge step in restoring trust in the startup community. Before this move, many startups were planning emergency measures that would likely have resulted in more layoffs and layoffs. The actions have provided much-needed reassurance that everyone can make payroll on Monday,” said Jon Sakoda, founder of startup venture firm Decibel Partners.
The bank’s sudden closure sent a chill through Silicon Valley amid an otherwise bleak period marked by tech layoffs and reduced spending as consumers tightened their wallets. Company executives, many of whom put all their money into Silicon Valley Bank, pleaded for help via Twitter and other social media networks.
Sam Altman, head of OpenAI, known for its ChatGPT artificial intelligence software, was among those who answered the call, offering emergency funding for startups to weather the uncertainty and pay their employees, Reuters reported Sunday.
Technology investor Asheesh Birla had been working non-stop for the past three days, between advising companies on how to make payrolls, or urging people to call their local politician. He is very happy with the federal government’s decision to stop deposits, but not to make the bank’s shareholders healthy, he said.
“Companies should never have to worry about whether or not their deposits are safe,” he said.
A joint statement Sunday from U.S. government agencies, including the Treasury Department and the Federal Reserve, indicated that taxpayers would not bear any costs related to the new Silicon Valley Bank plans. However, shareholders and some unsecured creditors will not receive the same protection.
Birla predicts that startups will rush en masse to open accounts with major banks in the coming days. And for companies that have significant cash holdings, he thinks there will be a strong interest in hiring treasurers who will work to minimize the amount of cash companies are holding at any given time.
Silicon Valley Bank has so far been a reliable source of funding for startups compared to other banks.
Rad AI CEO Doktor Gurson said the news represented a “joint sigh of relief” after spending days agonizing over how to earn payroll for his startup with some 65 employees. “To be honest, I lost a few years of my life this weekend. It’s been a bit of a rollercoaster.”
However, the saga is far from over. Even as Rad AI plans to move funds into new accounts at larger banks, it remains unclear exactly when it will have access to all of its SVB funds, he said.
“I don’t know if there’s a safe place to go,” he said. “I’m still a little nervous about what could happen.”
He added: “We will still have to assess what we do going forward.”
(Reporting by Anna Tong, Krystal Hu and Jeffrey Dastin; Writing by Greg Bensinger; Editing by Kenneth Li and Diane Craft)
