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Startups that use Silicon Valley Bank are freaking out over payroll
- ergonaught 4y agohttps://archive.ph/hkH1y https://archive.ph/hkH1y
- gumballindie 4y ago“He said that some had refused to report to work because they hadn't been paid.” And rightfully so. I am wondering if they will need to pay delayed salaries with an interest.
- deleted 4y ago[deleted]
- skeeter2020 4y agothis is probably predominately California, so no; employees owed back wages are top-line creditors but not contractually owed interest. Not sure about other jurisdictions, and they could always pursue legal action.
- acomar 4y agoin CA, unpaid wages pierce the corporate veil and damages are owed. so there will definitely be lawsuits, including class action.
- andsoitis 4y ago> SVB is the bank of choice for nearly half of all US venture-backed startups Why? What did SVB provide that Citibank, JP Morgan, Wells Fargo, Bank of America, etc. not provide?
- panick21_ 4y agoHere a 1h answer: https://www.youtube.com/watch?v=pYrlCv-bwDk https://www.youtube.com/watch?v=pYrlCv-bwDk
- tylergetsay 4y agoFrom what I've seen - a fancy feeling. deposit your vc money and they'll give you a huge credit line and a bottle of champagne.
- bumbledraven 4y agohttps://www.fastcompany.com/90864382/silicon-valley-bank-was https://www.fastcompany.com/90864382/silicon-valley-bank-was... : > In many cases, startups exclusively banked with SVB because doing so was listed as a covenant of their debt! > So CEOs across the tech sector on March 9 faced a hard choice: You can pull your deposits from the bank in order to save them, but then you would be in breach of covenant, and at risk of default on your venture debt. Of course, the alternative was that you risked losing everything if the bank failed. Many chose to hold tight as SVB’s outright failure seemed outlandish even a few short hours ago. [this is a copy/paste of a comment I made on another thread]
- Eric_WVGG 4y agoThis Vox article < https://www.vox.com/technology/23634433/silicon-valley-bank-collapse-silvergate-first-republic-fdic https://www.vox.com/technology/23634433/silicon-valley-bank-...> talks about that a bit. > More importantly, SVB was particularly flexible about lending tech startups money even though they didn’t have free cash flow (because tech startups usually lose money at the beginning of their lives) or much in the way of assets (because startups often don’t have much more than the brains of their founders and early employees when they launch). “If you are a startup company, you don’t look like a normal business,” says Sean Byrnes, a startup founder and investor who says he has used SVB for years. “Most banks, if you go to them and ask for a loan, they’ll laugh at you.” SVB was also often willing to work with founders who weren’t US citizens, which would be an obstacle for more traditional banks.
- andsoitis 4y agoI see. So useful for companies who are considered too high risk for "regular big banks" --- but they're all clumping together so it should be your second choice, only if you couldn't get a loan from a regular big bank.
- Eric_WVGG 4y agoI don’t think it’s so much “high risk” as it is “non-traditional.” In a normal new business, you have a factory, and all the machinery is assets, and if it goes under you can sell the physical trucks and widget presses. That’s just not how America has worked for a long time now, and I don’t think most folks would describe American businesses as any riskier than in say Serbia. This isn’t a “bad guy” story, as far as I can tell.
- varispeed 4y ago> I don’t think it’s so much “high risk” as it is “non-traditional.” Funny how tables have turned recently. Now it's other way around more often. If your start up is actually manufacturing something, a physical item, the banks deem the business as non traditional... Go figure...
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- JOnAgain 4y agoBank accounts and service. Seriously. When you are a startup, a typical model is you deposit $2mm or $4mm or whatever of VC money and spend it down. You are a brand new company with no income and a bunch of money. You trip all their fraud flags, and all their models for credit are based on income, age of account, etc. Payments to vendors would constantly get frozen, incoming wire transfers get flagged. Getting a cash-backed company credit card wasn't possible. It has improved slightly recently, but still very tough. Overall, I'd say very few startups use the big banks today. If they're not with SVB, they're with other mid-size regional banks.
- MrMan 4y agoventure debt with generous terms as well
- deleted 4y ago[deleted]
- dougSF70 4y agoIf you want foreign currency accounts, there are two options Silicon Valley Bank or HSBC. HSBC requires deposits of $2mn to open foreign currency accounts, svb does not.
- ______ 4y agoOne thing that always surprised me about SVB was how bad the UX/UI of the site was, for a company so close to all these companies at the forefront of web technology. The signup process was abysmal.
- exhibitapp 4y agoHappy SVB customer (until this week) for my venture backed startup. The big banks refused to even open an account for my startup. Our business model is incredibly common but due to it being "fintech" we could not open an account. SVB still had a decent amount if KYC stuff and paperwork but would allow us to operate. Another banking platform we used literally reversed the incoming wire from our lead seed investor, even though i called the bank before telling them to expect a large deposit. SVB was great to work with. The people are fantastic. The big banks on the other hand...
- andsoitis 4y ago> The big banks refused to even open an account for my startup. > Our business model is incredibly common but due to it being "fintech" we could not open an account. what's the name of your startup?
- JohnFen 4y agoIn other words, SVB was willing to shoulder a greater amount of risk than the more staid banks. There's nothing wrong with that at all -- but taking on more risk is taking on more risk, and sometimes you end up getting burned by it.
- sgc 4y agoBut that is not what happened here AFAIK. They got burned by being too conservative and investing in government backed securities. I think from their perspective, they thought they understood tech better than other banks, so thought that they could better analyze the risk (thereby not misclassifying many companies as risky) and use that as a competitive advantage. Right now, it does not look like that part of their business model failed at all.
- fnsa 4y agoIt was not conservative at all! They invested short term deposits in long term bonds (MBS)
- ashwagary 4y ago>What did SVB provide that Citibank, JP Morgan, Wells Fargo, Bank of America, etc. not provide? Would it be fair to characterize most answers as a generally larger appetite for risk? Anybody familiar care to comment?
- Apreche 4y agoI have a very strict policy. No pay, no work. Only once in the past was it nearly invoked. We'll see if this is the time.
- ohdannyboy 4y agoI made the mistake of doing this once and never again. I ended up deferring almost $20k into stock that never became worth anything. The company went under and I was so low on the list of people getting paid that I got literally $0.
- mytailorisrich 4y agoThat's a good policy. Additionally, salaries are usually paid in arrears, which means you already did the work when payday comes so if it does not and you keep on working you're actually going deeper into the red.
- Symbiote 4y agoI think it's reasonable when the employer is having trouble, but in this case it's the employer's bank, or the employer's payment processor's bank. I would think it worth working at least Monday, then deciding how to proceed after the banks have opened.
- mytailorisrich 4y agoUltimately I think what matters is whether you think it's only a short delay because of a technical reason. If that's the case, sure keep on as usual but do remind your boss that you were understanding when the time comes.
- skeeter2020 4y agoNot sure about the particulars in the post above about "getting burned with deferred stock" but wages are very high in the priority of creditors. Unless your company essentially goes to zero, or the payroll is so big that insured savings wouldn't cover a pay cycle you should be pretty confident that you (and the government) will get paid. Also news flash: you get paid at the end of the cycle, so you're already working on credit.
- baron816 4y agoHow do you know it’s a business insider article? It uses “freaking out” in the headline.
- ianbotham 4y ago:)
- ohdannyboy 4y agoThe company I work for only said our next payroll is safe. The rest of the statement was wordy without saying much which is a pretty big red flag to me. Here's hoping we didn't lose the entire extension round we just raised.
- abirch 4y agoDoes anyone know if there's an estimate of what % of Y-combinator companies used SVB?
- whitemary 4y ago>=30%, which is the proportion of Y-combinator companies who cannot make payroll thanks to SVB's failure. Source: https://twitter.com/garrytan/status/1634286688922132481 https://twitter.com/garrytan/status/1634286688922132481
- fairity 4y agoNo, 30% is the percent of yc companies who reported having money trapped in SVB that can’t make payroll. The question you’re responding to is asking what percent used svb. That is unknown.
- whitemary 4y agoThat's what I said. Did you even read my comment?
- dota_fanatic 4y agoUsed SVB and cant make payroll does not equal used SVB and can make payroll (because e.g. they have cash stored in more than one bank).
- sumeno 4y agoYou're familiar with what >= means, right? The OP was saying it was at least 30%
- treis 4y agoI don't understand why people are blowing this out of proportion. SVB had $100 billion of securities that are now worth about 70-80 billion. That plus short term securities means they've got $100 billion liquid against $170 billion in deposits. So ~60% of deposits are coming on Monday. They've got an additional ~70 billion in loans that are likely less liquid to fill the remaining 70 billion of deposits. It's less certain how much these are worth but they're at least worth something. Net result is that depositors are losing 0-40% of their money. Much more likely that it's 0-15%. Which sucks but it's not going to kill an otherwise healthy company.
- bognition 4y agoOk. But who is ever going to put money in SVB after this.
- rwc 4y agoSVB is gone. Forever.
- nimbleplum40 4y agoNobody? The bank no longer exists…
- rywalker 4y agoThe bank formerly known as SVB is no longer, it's now called "Deposit Insurance National Bank of Santa Clara" as a sort of temporary organization.
- postalrat 4y agoIt becomes a bigger deal with you need to pay your bills now and you can't access your money. Maybe for months.
- treis 4y agoAgain, likely ~60% of the money is coming Monday with more trickling over the next few weeks.
- expertentipp 4y agoAt least once in a while, I feel better for not having a job.
- andsoitis 4y agoIf, as others have stated throughout this thread, that startups typically couldn't get bank accounts at regular big banks, where would they go now?
- 0xbadc0de5 4y agoTo paraphrase an old saying: When you owe your creditors $1M and can't pay, you're in deep shit. When you owe your creditors $1B and can't pay, they're in deep shit.
- vivegi 4y agoRead a stat only 2.7% of SVB’s deposits were under the $250k FDIC insurance threshold. Wasn’t sure if this was in $ or customer accounts terms. If the latter, that’s a good predictor of the probability bank runs at other institutions. When the VCs started advising their portfolio cos to pull out, it toppled the dominoes very fast. If SVB had a higher retail account mix, this probably would have been a slightly different outcome. One report said depositors tried to pull out $45B before it went down. It would many HNI retail depositors doing a simultaneous withdrawal to trigger a failure. Not impossible, just much lower probability of that occurring.
- willis936 4y agoIf anyone has experience here: not paying wages is not the same as "letting someone go", "laying them off", or "firing" them, right? So if you have employment contract that has a signing bonus that needs to be returned if an employee willingly leaves within a time period but then the employee stops getting paid they can't leave the job without being on the hook for that signing bonus, right?
- eclark 4y agoThis sounds like something that you should not take any advice offered for free over the internet. There are a lot of nuances in employment law and location specific parts. Constructive dismissal and furlough are some terms you can research for more info.
- chemeng 4y agoIt’s complicated and depends heavily on the jurisdiction. In order for it to be involuntary termination, what you’d likely need is a situation in which you have worked and not been paid for that work and the employer refusing to do so. This would create illegal or intolerable working conditions, to which you’d then need to argue is constructive dismissal. But you should speak to a qualified employment attorney.