Shelf Engine co-founders Bede Jordan, left, and Stefan Kalb
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Shelf Engine co-founders Bede Jordan, left, and Stefan Kalb
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Stefan Kalb was in the middle of a meeting around 1pm on Thursday when a fellow company executive sent him a panicked Slack message: “Do you know what’s going on at SVB?”
Kalb, CEO and co-founder of Shelf Engine, a Seattle-based food management startup, has been following the news of an up-and-coming bank in Silicon Valley Bank, with efforts pulled $42 billion from the bank on Thursday alone because of fears that it was on the brink.
The bank was on solid financial footing on Wednesday. The next day, it was underwater.
For Shelf Engine, a 40-member startup founded in 2015 that uses artificial intelligence to help grocery stores reduce food waste, this is a big deal.
Not only does the Silicon Valley bank help the company process checks and payments, but all of the startup’s cash is locked up in the bank.
Kalb started to act. He and his team quickly opened an account at JPMorgan Chase and managed to move every last penny out of Silicon Valley Bank.
Kalb, 37, said in an interview on Friday: “Unfortunately, our wire hasn’t been honored and our money is still at the Silicon Valley Bank. “We woke up this morning hoping the money was going to that JPMorgan bank account, but it wasn’t.”
Although he declined to provide the exact amount, he noted that Shelf Engine has raised more than $60 million from investors. “It’s a huge sum of money,” he said of the transfer.
It’s a nail-biting limbo that many tech startups that have penetrated deep into Silicon Valley Banks are now facing in the wake of the bank’s collapse, America’s biggest bank bust yet. since the 2008 financial crisis.
For tech startups, which for decades have relied heavily on the Santa Clara, California-based bank, it’s triggered a crisis that could lead to mass layoffs or hundreds. Startups collapse, according to industry insiders.
Garry Tan, president and CEO of startup incubator Y Combinator, said in an interview: “If the government doesn’t intervene, I think an entire generation of startups will be wiped off the planet. This.
While critics see the idea of governments repurposing banks as a bailout for the tech and venture capital world, Tan argues that such a move would save depositors, many Among them are small businesses in the technology sector.
An ‘existential risk’ to innovation and competition in the US
Establish through a game of poker in 1983, Silicon Valley Bank became the go-to lender for tech startups that seemed too risky in the eyes of larger, more traditional banks. Eventually, Silicon Valley Bank will do business with nearly half of all US tech startups backed by venture capitalists.
“If you’re a fast-growing startup, you can’t get a credit card from a normal credit card provider, you can’t get a loan from a big bank, but Silicon Valley Bank will gives you that,” says Shelf Engine’s Kalb. “Those are services that startups can’t get elsewhere.”
The Silicon Valley Bank has done business with well-known tech companies including Shopify, Pinterest, Fitbit and thousands of lesser-known startups, in addition to established venture capital firms, like Andreessen Horowitz.
Roku, the TV streaming service provider, is among the companies caught in the middle with $487 million, it said in a statement. adjustment profile on Friday. “At this point, the company does not know to what extent it will be able to recover cash deposited at SVB,” officials at Roku wrote of about 26 percent of the company’s cash.
Tan, with Y Combinator, which has helped launch startups including Airbnb, Reddit and Instacart, said the biggest threat right now is not to the world’s Rokus, but to companies. The small startup is fighting to survive in a challenging fundraising environment.
Startup leaders haven’t stopped reaching out to him since the failed Silicon Valley Bank with a sense of horror and fear — and increasingly faced with what could mean layoffs. avoid, or even terminate, their company.
“The founders are now texting me saying they don’t know how to pay next week. Do they have to take out personal loans to keep the business going? Do they have to lay off workers? permission?” Tan said. “This could be an existential risk to competition and innovation in the US economy over the next decade.”
While most banking professionals don’t expect the fallout of the Silicon Valley Bank to spill over into other parts of the financial world, how much will depositors be able to recover? money is still an open question.
The failure of the Silicon Valley Bank comes at a ‘challenging’ time for startups
Federal Deposit Insurance Corporation said that depositors will be able to access up to $250,000 of their funds on Monday morning. Any of the above amounts will result in a “receipt certificate”.
And when the FDIC sells Silicon Valley Bank assets, the certificate holders will receive the payment – but how long that will take and how much will be returned remains unclear.
Some estimates suggest that only about 3% of bank deposits are under $250,000, meaning the majority of depositors have amounts above the standard federal insurance coverage.
Kalb said he is exploring loans, or other lines of credit, to survive.
The $250,000 guarantee from the FDIC will allow the startup to stay open for a few more days, but not much longer.
He just paid his employees this week and his next payday is March 20.
“If we don’t have access to capital by then, we’re going to have to make some very difficult decisions,” he said.
Y Combinator’s Tan says the demise of one of Silicon Valley’s foundational financial institutions is unlikely to come at the worst of times for the startup ecosystem.
High interest rates and market uncertainty have led lenders to tighten their grip on funds, after years of low interest rates and money that is prone to skyrocketing valuations.
Recently, entrepreneurs have been sounding the alarm about how rapidly existing cash is evaporating, forcing thousands of startups to lay off workers or close down altogether.
In those bruising conditions was the demise of Silicon Valley Bank, seen as a financial pillar of the startup world.
“Venture capital is already in contraction mode,” Tan said. “So this is really a challenging time for something very devastating to happen.”
